Agricultural Policies in Emerging Economies 2009: Monitoring and Evaluation

Agricultural Policies in Emerging Economies monitoring And EvAluAtion This report analyses policy developments during 2006-08 in seven economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. This period was marked by a significant increase in world prices for most, but not all, agricultural commodities. Policy responses to rising food prices included tariff reductions, export restrictions, increased minimum prices and price controls, input subsidies, sales of stocks and direct transfers to the most disadvantaged. Other major common policy developments included: expanded government-supported credit facilities and/or debt rescheduling, endeavours to improve the delivery and performance of agricultural policies, extended coverage of insurance programmes and further efforts in land reform. A comprehensive statistical annex containing a wide range of contextual information for these economies is also included in this report.

Estimates of support to agriculture in six economies (India is not yet covered) from 1995 to 2007 are provided, in conformance with recent changes to the OECD measurement methodology. This allows a consistent comparison across emerging economies and with OECD countries in terms of changes in the level and composition of support to producers and the sector as a whole. Findings show that the level of producer support during 2006-08 was lower than the OECD average in all six economies, with significant differences between them. Nevertheless, the level of producer support has shown a general increase over time and is typically provided in ways that distort production and trade. The database of indicators for the six economies is available on line: www.oecd.org/tad/support/psecse.

FurtHEr rEAding

OECD Rural Policy Reviews: China (2009)OECD Review of Agricultural Policies: Chile (2008)Agricultural Policies in OECD Countries: At a Glance (2008)OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual) (2008), available atwww.oecd.org/tad/support/psecse

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isbn 978-92-64-05927-651 2009 01 1 P -:HSTCQE=UZ^W\[:

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Agricultural Policies in Emerging Economiesmonitoring And EvAluAtion

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Agricultural Policies in Emerging Economies

2009

MONITORING AND EVALUATION

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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where the governments of 30 democracies work together to

address the economic, social and environmental challenges of globalisation. The OECD is also at

the forefront of efforts to understand and to help governments respond to new developments and

concerns, such as corporate governance, the information economy and the challenges of an

ageing population. The Organisation provides a setting where governments can compare policy

experiences, seek answers to common problems, identify good practice and work to co-ordinate

domestic and international policies.

The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic,

Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,

Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic,

Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of

the European Communities takes part in the work of the OECD.

OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and

research on economic, social and environmental issues, as well as the conventions, guidelines and

standards agreed by its members.

Also available in French under the title:

Politiques agricoles des économies émergentes

SUIVI ET ÉVALUATION

2009

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

Cover illustration:In the centre © Adalberto Rios Szalay/Sexto Sol/Photodisc/Getty ImagesOn the top left © OECDOn the top right © Javier Pierini/Photographer’s Choice RF/Getty ImagesOn the bottom right © Jon Warburton Lee/Photographer’s Choice RF/Getty Images© OECD 2009

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opinions expressed and arguments employed herein do not necessarily reflect the officialviews of the Organisation or of the governments of its member countries.

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The views expressed herein can in no way be taken to reflect the official opinion of theEuropean Union.

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FOREWORD

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Foreword

A key objective of the OECD is to facilitate policy dialogue among policy makers with a view to

identifying good practices across a wide range of economic and social policy issues. The OECD places

a high priority on its dialogue with non-member economies, recognising that such dialogue improves

the quality and relevance of the work and assists collective action to address global economic

challenges. During 2006-08, the period covered by the report, high prices for many agricultural

commodities posed a major policy challenge for many countries. Policy responses to the “food crisis”

are a special focus of this report.

This monitoring exercise documents and evaluates the latest agricultural policy developments

in seven emerging economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. Chile has

been included for the first time, following the completion of a country review of agricultural policies

in 2008. Bulgaria and Romania, which were included in the previous edition, have subsequently

acceded to the European Union and therefore, by convention, are now covered in the annual

monitoring and evaluation report of agricultural policies in OECD countries.

The other important development since the previous report concerns changes made to the

method used to calculate and present the Producer Support Estimate (PSE) and related indicators of

support. Ongoing changes in agricultural policies require that the methodology be reviewed

periodically. A new classification of policy measures within the PSE and a new method for calculating

commodity-specific support have been adopted, and consequently implemented in this report.

Definitions of support indicators and changes in the classification system are detailed in an annex,

along with a description of improvements made to the estimates of support for each economy.

The structure of the report is similar to that prepared on an annual basis for OECD countries,

providing a common benchmark for international dialogue on agricultural policy reform. An

overview chapter provides context on world commodity markets, comments on policy developments,

compares support indicators between economies and over time, and presents some conclusions on

recent changes. For each economy, a separate chapter describes policy developments in 2006-08 and

presents estimates of agricultural support in a consistent format. A comprehensive statistical annex

containing a wide range of contextual information for these economies is also included.

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Acknowledgements

This report was prepared by the OECD Trade and Agriculture Directorate. Themain authors were Andrzej Kwiecinski (co-ordinator), Jonathan Brooks, DalilaCervantes-Godoy, Darryl Jones (consultant), Olga Melyukhina and VáclavVojtech. Comments were received from Ken Ash, Carmel Cahill and DouglasLippoldt. Statistical support was provided by Florence Bossard, who alsocompiled the statistical annex and graphics. Anita Lari formatted the report andprovided administrative support for the 2008 Global Forum on Agriculturewhere the chapters were reviewed. A number of local experts contributedvaluable background material for the preparation of the country chapters,including: Vicente Marques (Brazil), Andrea Cerda Vásquez (Chile), ChengGuoqiang and Li Xiande (China), Simrit Kaur (India), Ekaterina Gataulina,Viktor Koloskov, Ludmila Muratova, Roman Romashkin, Sergey Strokov andVasily Uzun (Russia), André Jooste, David Spies and Pieter Taljaard (SouthAfrica) and Irina Kobuta (Ukraine). Technical assistance and programming inthe preparation of the PSE/CSE database was provided by Frano Ilicic.

é

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TABLE OF CONTENTS

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Table of contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

List of Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Developments in world food markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Main changes in agricultural policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Developments in agricultural support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Policy observations and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Chapter 2. Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Policy context: Brazil agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Chapter 3. Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Policy context: Chile’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64


Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Chapter 4. China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Policy context: China’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80


Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Chapter 5. India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Overview of support estimates for Indian agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Policy context: India’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Chapter 6. Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Policy context: Russia’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

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Chapter 7. South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136Policy context: South Africa’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . 138Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Chapter 8. Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Summary of policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150Policy context: Ukraine’s agriculture at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Policy developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Annex A. Measuring Agricultural Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1671. Definitions of OECD indicators of agricultural support . . . . . . . . . . . . . . . . . . . 167

2. The PSE classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1683. Measuring agricultural support in emerging economies: technical updates

and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Annex B. Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Boxes

1.1. Potential impacts on agriculture of the financial crisis . . . . . . . . . . . . . . . . . . . . . . . 221.2. Why does the PSE change when world prices change? . . . . . . . . . . . . . . . . . . . . . . . 312.1. Food price inflation in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462.2. The 2008 debt settlement package in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533.1. Food price inflation in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663.2. Structural changes: Preliminary results from the 2007 Agricultural Census

in Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734.1. Food price inflation in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825.1. Food price inflation in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1006.1. New regulatory and administrative framework for agricultural policies

in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1186.2. Food price inflation in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1197.1. Food price inflation in South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1407.2. Trade agreements involving South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1458.1. Food price inflation in Ukraine and government's responses . . . . . . . . . . . . . . . . . 1548.2. Ukraine’s WTO commitments in agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162A.1. Classification of PSE and related support indicators applied until 2006 . . . . . . . . . 171A.2. Classification of PSE applied from 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172A.3. Definitions of categories in the new PSE classification . . . . . . . . . . . . . . . . . . . . . . . 173

Tables

1.1. Policy measures taken by governments to reduce the impact of higher food prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1.2. Contribution to the change in Producer Support Estimate, 2006 to 2007 . . . . . . . . 291.3a. Contribution to the change in Market Price Support, 2006 to 2007 . . . . . . . . . . . . . 301.3b. Contribution to the change in border price, 2006 to 2007 . . . . . . . . . . . . . . . . . . . . . 30

1.4. Single Commodity Transfers by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . 342.1. Brazil: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432.2. Brazil: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . 442.3. Brazil: AGF minimum guarantee prices for main programme crops, 2005-09 . . . . 482.4. Brazil: Expenditure and volume of product by output support instrument,

2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

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2.5. Brazil: Annual credit allocations in the SNCR, 2003-07 . . . . . . . . . . . . . . . . . . . . . . . 513.1. Chile: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.2. Chile: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . 643.3. Number and area of agricultural and forestry operations by type in Chile,

1997 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733.4. Agricultural and forestry land use in Chile, by activity, 2007 . . . . . . . . . . . . . . . . . . 744.1. China: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794.2. China: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . 804.3. Minimum purchase prices for grains in China, 2004-08 . . . . . . . . . . . . . . . . . . . . . . 845.1. India: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . . 985.2. Minimum support prices in India for selected commodities, 2005-09 . . . . . . . . . . . 1026.1. Russia: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1156.2. Russia: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . . 1166.3. Russia’s meat import quotas in 2005-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1307.1. South Africa: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1377.2. South Africa: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . 1387.3. South African Customs Union tariff schedule, August 2007 . . . . . . . . . . . . . . . . . . 1448.1. Ukraine: Estimates of support to agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1518.2. Ukraine: Basic economic and agricultural indicators, 2005-07 . . . . . . . . . . . . . . . . . 1528.3. Ukraine: Credit received by agricultural enterprises in 2006-07 . . . . . . . . . . . . . . . . 1588.4. Ukraine's import tariff rates on key agricultural products before

and after WTO accession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163B.1. Share of agriculture in total employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182B.2. Share of agriculture in GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182B.3. Agricultural input price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182B.4. Agricultural output price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183B.5. Retail food price index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183B.6. Gross Agricultural Output growth, total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183B.7. Gross Agricultural Output growth, crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184B.8. Gross Agricultural Output growth, livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184B.9. Total grain production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

B.10. Wheat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185B.11. Coarse grain production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185B.12. Total meat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185B.13. Beef and veal production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185B.14. Pigmeat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186B.15. Milk production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186B.16. Production of selected commodities in selected developing countries . . . . . . . . . . 187B.17. Average share of household income spent on food . . . . . . . . . . . . . . . . . . . . . . . . . . 189B.18. Annual consumption of grain and grain products . . . . . . . . . . . . . . . . . . . . . . . . . . . 189B.19. Annual consumption of meat and meat products . . . . . . . . . . . . . . . . . . . . . . . . . . . 189B.20. Annual consumption of milk and dairy products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190B.21. Total area sown, crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190B.22. Grain sown areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190B.23. All cattle inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191B.24. Pig inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

Figures

1.1. Changes in nominal international prices for selected agricultural commodities since 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1.2. Changes in nominal prices for selected energy, fertiliser and freight costs since 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

1.3. Inflation, consumer prices, annual average, 2000-08 . . . . . . . . . . . . . . . . . . . . . . . . . 211.4. Agricultural and food trade balance, 1995 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 251.5. Evolution of producer support levels, 1997 to 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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1.6. Composition of producer support, 1995-97 and 2005-07 . . . . . . . . . . . . . . . . . . . . . . 321.7. Producer Nominal Protection Coefficients, 1995-97 and 2005-07 . . . . . . . . . . . . . . . 331.8. Single Commodity Transfers as a share of PSE, 1995-97 and 2005-07 . . . . . . . . . . . 341.9. Level and composition of General Services Support Estimate,

2000-02 and 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.10. Composition of Total Support Estimate, 1995-97 and 2005-07 . . . . . . . . . . . . . . . . . 36

2.1. Brazil: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422.2. Brazil: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422.3. Brazil: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . 442.4. Brazil: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442.5. Brazil: Consumer price indices in 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473.1. Chile: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623.2. Chile: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623.3. Chile: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . . 643.4. Chile: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643.5. Chile’s monthly wholesale prices of wheat and maize compared

with world market prices, 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663.6. Chile’s CPI compared with oil prices and exchange rate . . . . . . . . . . . . . . . . . . . . . . 673.7. Chile: Shares of agricultural transfers by programme area, 2007 . . . . . . . . . . . . . . . 684.1. China: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784.2. China: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784.3. China: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . 804.4. China: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804.5. China’s monthly wholesale prices of wheat, rice, maize and soybeans

compared with world market prices, 2006-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835.1. Average Nominal Rates of Assistance in India, 1965-2004 . . . . . . . . . . . . . . . . . . . . 965.2. Nominal Rate of Assistance in India by commodity, 2000-04 . . . . . . . . . . . . . . . . . . 965.3. India: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . . 985.4. India: Agro-food trade, 1995-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 985.5. India’s monthly wholesale prices of wheat, rice, maize and soybeans

compared with world market prices, 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1016.1. Russia: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1146.2. Russia: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1146.3. Russia: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . . . 1166.4. Russia: Agro-food trade, 1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166.5. Russia: Consumer price indices in 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1196.6. Russia: Retail price growth rates for key food items . . . . . . . . . . . . . . . . . . . . . . . . . 1206.7. Russia: Components of the State Programme for Development

of Agriculture in 2008-12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1216.8. Russia: Expenditures under the Financial Sustainability Component

of the State Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1216.9. Russia: Concessional credit allocations in 2005-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

6.10. Russia: Budgetary expenditures related to concessional credit, 2005-08 . . . . . . . . 1256.11. Russia: Distribution of agricultural land by type of farm, as of 1 July 2006 . . . . . . . 1286.12. Russia: Share of farms reporting agricultural operations in 2006 . . . . . . . . . . . . . . 1286.13. Russia: Share of utilised agricultural land in farms of different type in 2006 . . . . . 129

7.1. South Africa: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . 1367.2. South Africa: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . 1367.3. South Africa: Evolution and annual changes of agricultural output, 1995-2007 . . 1387.4. South Africa: Agro-food trade, 2000-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1387.5. South Africa: Consumer Price Indexes for food and selected food products . . . . . 1407.6. South Africa: Percentage distribution of annual household

consumption expenditure by expenditure group and income deciles . . . . . . . . . . 1418.1. Ukraine: PSE level and composition over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1508.2. Ukraine: Producer SCT by commodity, 2005-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

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8.3. Ukraine: Evolution and annual changes of agricultural output, 1995-2007 . . . . . . 1528.4. Ukraine: Agro-food trade, 1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1528.5. Ukraine: Consumer price indices in 2007-08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548.6. Ukraine: Retail price growth for key food items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1568.7. Ukrainian applied import tariffs on key agricultural products . . . . . . . . . . . . . . . . . 1638.8. Ukrainian wheat export quota and wholesale wheat prices in 2006-08 . . . . . . . . . 164

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LIST OF ACRONYMS AND ABBREVIATIONS

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List of Acronyms and Abbreviations

AAY Poorest-of-the-poor (antyodaya ann yojana; India)

ABC Agricultural Bank of China

ACFTA ASEAN-China Free Trade Agreement

ACP African, Caribbean and Pacific

AEZ Agri-Export Zone (India)

AFC Family Agriculture (Agricultura Familiar Campesina; Chile)

AGOA African Growth and Opportunity Act

AgriBEE Black Economic Empowerment Framework for Agriculture

AMS Aggregate Measurement of Support

APEDA Agricultural and Processed Food Products Exports Development Authority (India)

APMC Agricultural Produce Marketing Committee Act (India)

APTA Asia-Pacific Trade Agreement

ASEAN Association of South East Asian Nations

BAF Financial Coordination Subsidy (Bono de Articulación Financiera; Chile)

BLNS Botswana, Lesotho, Namibia and Swaziland

BNDES National Bank for Economic and Social Development (Brazil)

CACP Commission for Agricultural Costs & Prices (India)

CASP Comprehensive Agricultural Support Programme (South Africa)

CBR Central Bank of Russia

CES Agreement on Common Economic Space (between Belarus, Kazakhstan, Russia

and Ukraine)

CIP Central Issue Price (India)

CIS Commonwealth of Independent States

CNR National Irrigation Commission (Comisión Nacional de Riego; Chile)

COMSA Agricultural Insurance Programme (Comité de Seguro Agrícola; Chile)

CONAB National Food Supply Agency (Brazil)

CONADI National Service for Indigenous Development – MIDEPLAN, Chile (Corporación

Nacional de Desarrollo Indígena)

CORFO Economic Development Agency (Corporación de Fomento a la Producción; Chile)

COTRISA Wheat Marketing Enterprise (Comercializadora de Trigo; Chile)

CPC Communist Party of China

CPI Consumer Price Index

CPI-IW Consumer Price Index for Industrial Workers (India)

DIPRES Budget Department (Dirección de Presupuesto), Chilean Ministry of Finance

DIRECON Directorate for International Economic Relations – Chilean Ministry of Foreign

Affairs (Dirección de Relaciones Económicas Internacionales)

DoA Department of Agriculture (South Africa)

EC European Commission

ECA Economic Complementation Agreement (Chile)

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ECA Essential Commodity Act (India)

ECLAC Economic Commission for Latin America and the Caribbean – United Nations

(Comisión Económica para América Latina y el Caribe – CEPAL)

EFTA European Free Trade AssociationEPA Economic Partnership AgreementsEU European UnionFAD Fund of Delegated Cash Management (Fondo de Administración Delegada; Chile)FAO Food and Agriculture Organization of the United NationsFAP Federal Agency for Regulation of Food Market (Russia)FCI Food Corporation of IndiaFDI Foreign Direct InvestmentFOSIS Social and Solidarity Investment Fund (Fondo de Solidaridad e Inversión Social; Chile)FSSS Federal State Statistics Service (Russia)FTA Free Trade AgreementGAO Gross Agricultural OutputGATT General Agreement on Tariffs and TradeGDP Gross Domestic ProductGEIS General Export Incentive Scheme (South Africa)GMO Genetically Modified OrganismGOI Government of IndiaGRF Government of the Russian FederationHRB Basic Irrigation Hectares (Hectáreas de Riego Básico; Chile)IEPA Interim Economic Partnership AgreementIMF International Monetary FundINDAP National Institute for Agricultural Development (Instituto Nacional de Desarrollo

Agropecuario; Chile)INE Chile’s National Statistical Office (Instituto Nacional de Estadisticas de Chile)KCC Kisan (Farmer) Credit Card (India)LARP Land and Agrarian Reform Project (South Africa)LRAD Land Redistribution and Agricultural Development (South Africa)MAFISA Micro-Agricultural Finance Scheme of South AfricaMAPA Ministry of Agriculture, Livestock and Food Supply (Brazil)MDA Ministry of Agrarian Development (Brazil)MEP Minimum Export Price (India)MERCOSUR Southern Common MarketMERT Ministry of Economic Development and Trade (Russia)MFN Most Favoured NationMIDEPLAN Chilean Ministry of Planning and CooperationMINAGRI Chilean Ministry of AgricultureMIP Market Intervention Price (India)MOP Chilean Ministry of Public WorksMSP Minimum Support Price (India)NABARD National Bank for Agriculture and Rural Development (India)NAFED National Agricultural Cooperative and Marketing Federation of IndiaNAIS National Agricultural Insurance Scheme (India)NAMC National Agricultural Marketing Council (South Africa)NAP National Agriculture Policy (India) NDRC National Development and Reform Commission (China)

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NPF National Policy for Farmers (India)NRA Nominal Rate of Assistance NREGP National Rural Employment Guarantee Programme (India)NYBOT New York Board of Trade

ODEPA Office of Agricultural Policies and Studies (Oficina de Estudios y Políticas Agrarias; Chile)

OECD Organisation for Economic Co-operation and DevelopmentPBS Price Band System (Chile)PLAS Pro-Active Land Acquisition Strategy (South Africa)PNRA II Second National Plan for Agrarian Reform (Brazil)PPP Purchasing Power ParityPROCHILE DIRECON’s Department, to promote Chilean exportsPRONAF National Programme for the Strengthening of Family Agriculture (Brazil)PRRS Porcine Reproductive and Respiratory SyndromePSS Price Support Scheme (India)R&D Research and DevelopmentRBI Reserve Bank of IndiaRRA Relative Rate of AssistanceSACU South African Customs UnionSADC Southern African Development CommunitySAFTA South Asian Free Trade AreaSAG Agriculture and Livestock Service (Servicio Agrícola Ganadero; Chile)SARB South African Reserve BankSASA South African Sugar AssociationSAT Single Agricultural Tax (Russia)SEZ Special Economic Zone (India)SINOGRAIN China Grain Reserves CorporationSNCR National System of Rural Credit (Brazil)SPS Sanitary and PhytosanitarySSG Special SafeguardSTE State Trading Enterprise TBT Technical Barriers to TradeTDCA Trade, Development and Cooperation Agreement (South Africa)TPDS Targeted Public Distribution System (India) TICA Trade and Investment Cooperation AgreementTRQ Tariff Rate QuotaUF Chilean Unit of Account (Unidad de Fomento)UN United NationsURAA Uruguay Round Agreement on AgricultureUSA United States of AmericaVAT Value Added TaxWB World BankWBCIS Weather-Based Crop Insurance Scheme (India)WTO World Trade Organization

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OECD indicators of supportCSE Consumer Support EstimateGSSE General Services Support EstimateMPS Market Price SupportNAC Nominal Assistance CoefficientNPC Nominal Protection CoefficientPSE Producer Support EstimateSCT Single Commodity TransfersTSE Total Support Estimate

CurrenciesBRL Brazilian real

CLP Chilean peso

CNY Chinese yuan renminbi

EUR Euro

INR Indian rupee

RUB Russian rouble

UAH Ukrainian hryvnia

USD United States dollar

ZAR South African rand

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ISBN 978-92-64-05927-6

Agricultural Policies in Emerging Economies 2009

Monitoring and Evaluation

© OECD 2009

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Executive Summary

This report monitors and evaluates government support to agriculture in seven

emerging economies during 2006-08: Brazil, Chile, China, India, Russia, South Africa and

Ukraine. While the economic importance of the agricultural sector is falling relative to

other sectors in these countries, the sector continues to play a vital role in providing

employment and contributing to food security. Although weather conditions can cause

large short-term fluctuations, over the longer-term both agricultural production and, in

particular, agro-food trade are growing rapidly. Brazil, Chile, India and Ukraine are net

exporters of agro-food products, while China and Russia are net importers.

The three-year period from 2006 to 2008 was characterised by extreme volatility ininternational prices

International oil prices rose sharply in 2006-07, resulting in a substantial increase in the

cost of energy based inputs such as fuel, fertiliser and irrigation. In the second half of 2008,

downward pressure on commodity prices was exerted by the global financial crisis. This

pressure is likely to intensify should the crisis lead to a global recession.

Governments responded to the sharp rise in food prices with wide-ranging policymeasures. While some of them, such as raising interest rates, were introduced to reduce

demand, most were implemented to increase or at least ensure supply. The most common

response was to lower or suspend import tariffs and other taxes on food products. Those

countries with state-held stocks released them into the domestic market. Chile and South

Africa focused on transfers, either in cash or food, targeting directly those households who

were most adversely affected by the rise in food prices.

China, India, Russia and Ukraine introduced taxes or quantitative restrictions onexports of certain agricultural products. The use of such measures during 2007 and 2008

drew attention to the minimal disciplines imposed on export barriers by WTO rules and

raised several concerns. While potentially increasing the supply of specific products to the

domestic market, export barriers reduce supply on the world market, placing further

upward pressure on prices in importing countries. They can impede the transmission of

price signals to domestic producers, reducing the market incentives to expand production.

Moreover, export restrictions may potentially undermine trust in trade, encourage other

countries to adopt policies driven by inefficient self-sufficiency objectives and provide

incentives for speculative activities.

In some cases, governments also sought to stimulate the long term supply of

agricultural commodities by increasing input subsidies, particularly for fertilisers. Such

measures, however, may also have negative consequences. Input subsidies can encourage

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higher consumption than would have otherwise been the case and, in some instances, may

be associated with inefficiencies and serious environmental damage. Consequently, the

report recommends that any increase in input subsidies associated with short-term

shortfalls should be made time bound or linked to the actual input cost, so the subsidy is

reduced when the input cost comes down.

For the period 2005-07, estimates of government support to producers as a per cent of

gross farm receipts (%PSE) were: Chile (4%), Brazil (6%), South Africa (6%), China (9%),

Ukraine (9%) and Russia (14%). While the OECD has not yet estimated support indicators

for India, evidence from other studies suggests the level of producer support would be in

the range of 10%-20%. These levels of producer support are below the OECD average of 26%.

Since the beginning of the current decade, the level of producer support has remained

relatively stable in Chile, Brazil and South Africa, increased in China and Russia, and

fluctuated in Ukraine.

In addition to the level of support, the composition of support ( the way in which

transfers are provided to farmers) is also relevant, due to the diverse effects of different

instruments on production, trade, income and the environment. The composition of

producer support in the emerging economies is dominated by transfers based on eithercommodity output (market price support [MPS] and payments based on output) or input use.

These are considered to be most production and trade distorting, and are less efficient at

transferring income to producers. In comparison with OECD countries, very little use is

made of payments based on other factors such as land, animals or income.

Annual changes in the level of support are primarily driven by changes in the value of

transfers arising from MPS, which are affected by changes in the quantity of production,

international prices and exchange rates, as well as policy measures such as tariffs,

minimum guarantee prices and export subsidies. Failure to reach agreement in the WTODoha round of negotiations has meant there has been little pressure to change these policy

measures. Only in Ukraine, as a consequence of its accession to the WTO in 2008, has there

been a noticeable decrease in tariffs for highly supported commodities such as pigmeat,

poultry and sugar.

In terms of payments based on input use, Brazil, India and Russia expanded produceraccess to concessional credit in 2006-08 to encourage investment or enable producers to cope

with falling incomes. At the same time, new debt rescheduling and – in some cases – debt

write-offs are envisaged in Brazil, India and Ukraine. While access to credit is vital for the

further development of agriculture in emerging economies, the report recommends that

governments review and remove barriers to private sources of credit. Debt rescheduling,

done on an basis, can damage the discipline of credit systems and create an

expectation on the part of farmers that the government will bail them out in the event of

future payment difficulties.

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AGRICULTURAL POLICIES IN EMERGING ECONOMIES 2009 – ISBN 978-92-64-05927-6 – © OECD 2009

ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 1

Overview

This chapter provides an overview of developments over the period 2006 to 2008 inagricultural policies in seven emerging economies: two from the South Americancontinent (Brazil and Chile); two from Asia (China and India): two from Europe(Russia and Ukraine) and one from Africa (South Africa). A separate chapter foreach of the seven economies, providing in-depth analysis and commentary, followsthis overview. The first section discusses developments in world food markets, witha particular emphasis on the significant increase in global agricultural prices. Policyresponses to higher food prices, along with other significant policy changes and newinitiatives are then described. The global spread of the seven economies, their nettrade positions (net exporters and net importers) and their differing policy objectivesprovide for an interesting contrast in terms of government policy responses to thechallenge of food price inflation. The third section examines changes in the level andcomposition of agricultural support since 1995-97, a period which coincides with thebeginning of implementation commitments made under the Uruguay RoundAgreement on Agriculture (URAA), and makes comparisons between theseeconomies and with the OECD country averages. Finally, some policy conclusionsare offered both in terms of specific responses to higher agricultural prices and thegeneral direction of agricultural policy in these seven emerging economies.

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Developments in world food markets

The first part of this section discusses the significant increase in internationalcommodity prices, noting differences between commodities in terms of the timing and the

extent of increases, and the contributing factors. The impact of higher food and fuel priceson inflation is discussed in the second part, and the variety of policy responses in the

following section.

International commodity prices have risen dramatically

The period under review has witnessed a surge in international prices for somecommodities, which began to rise sharply in 2006 initially for wheat and maize, and then

for dairy products and oilseed crops (Figure 1.1). International market prices for thesecommodities more than doubled in nominal terms between the beginning of 2005 and the

end of 2007, and continued to rise rapidly for some through the first six months of 2008.International prices for rice, which had been increasing at a slower pace, tripled between

January and May 2008. However, prices for these commodities began falling in the secondhalf of 2008 on the expectation of favourable crop harvests and because of a slowing world

economy. In comparison, international prices for meat products, with the exception ofpoultry, have not shown such a dramatic rise although they were continuing to trend

upward through the latter part of 2008. After peaking at the end of 2005, internationalprices of sugar declined during 2006 and 2007, but rose once again in 2008 due to concerns

about the Brazilian harvest.

Price spikes, like price troughs, are not rare occurrences in agricultural markets,

although periods of high prices tend to be short lived compared with periods of low prices.Further, the recent price spike is neither the only nor even the most important one to occur

in the last 30-plus years. In inflation adjusted terms, peak prices in mid-2008 were wellbelow the peaks reached in the early 1970s, and current prices remain much below these

peaks, although above the historical trend.

The causes of the price spikes are complex and can be attributed to a combination ofmutually reinforcing factors at play in international agricultural markets. Over the long

term, demand for agricultural products has been steadily increasing, driven byconsumption growth in emerging economies such as India and China, although most of

the increase in consumption in these two countries had been met from domesticproduction. Demand patterns have also been changing, moving away from starchy foods

towards more meat and dairy products, which is intensifying demand for feed grains andstrengthening the linkages between different food commodities. While world cereal

production increased on average by 2% per year between 1980 and 2007, the portion goingto feed use has increased on average by over 3.5% per year.

The emerging biofuels market is a new and significant source of demand for someagricultural commodities such as sugar, maize, cassava, oilseeds and palm oil. Ethanol and

biodiesel production rose rapidly in many parts of the world, partly in response to higher

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Figure 1.1. Changes in nominal international prices for selected agricultural commodities since 2005

Index January 2005 = 100

Prices refer to monthly average.Wheat: US No. 2 Hard Red Winter, f.o.b. Gulf Maize: US No. 2 Yellow, f.o.b. GulfRice: Thai white rice 100% B second grade, f.o.b. Bangkok Soybean: US No. 1 Yellow, f.o.b. GulfSugar: I.S.A. daily price Beef: Australian, cow beef, boneless, c.i.f. USAPigmeat: USA, pork, frozen product, export unit value Poultry: USA, Broiler cuts, export unit valueSheepmeat: New Zealand, lamb, frozen whole carcasses, wholesale price, Smithfield (London)SMP: Oceania, indicative export prices, f.o.b.

Source: FAO, FAOSTAT Database, 2008.statLink 2 http://dx.doi.org/10.1787/528556426048

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oil prices which are making them more competitive. The implementation of public policies

to support the biofuel sector further encouraged the demand for these feedstocks. Between

2005 and 2007, half the increase in world grain use went into biofuel production.

On the supply side, there were significant weather-induced production shortfalls in

key commodity-exporting regions. Supply disruptions in major exporting countries can

have important implications for export supplies and international agricultural markets

even if they have little impact on global production. While total production of key traded

crops (wheat, rice, coarse grains, rapeseed, soybean, sunflower seed, palm oil and

sugar), measured in wheat equivalent terms, rose by almost 6% in 2007 compared to the

2003-05 average, production shortfalls of 20% in Australia and Canada, two major cereal

exporters, contributed to tighter export supplies.

The short-term fall in supply followed a longer term decline in global stocks of wheat,

rice and coarse grains, which have fallen steadily relative to use requirements since the

mid-1990s and even more quickly since 2000. The stock-to-use ratio for these cereals, at

17% in 2007/08, was half the level of ten years ago and lower than at any time during the

past 45 years. Very low stocks can make markets more vulnerable to shocks, contributing

to price volatility and overall market uncertainty.

International market prices have also been affected by policies introduced by

governments to reduce domestic inflationary pressures. In particular, the introduction of

export restrictions and bans, such as those imposed by India and China on rice or by Russia

and Ukraine on wheat, has restricted global supply and aggravated shortages. Unilateral

actions by exporting countries prompted others to quickly follow suit, undermining trust

in the market and leading to worse outcomes for all. The thinly traded rice market was

particularly vulnerable to such actions, with the rapid increase in international rice prices

heavily affected by government actions. Speculation and hoarding activities, fostered by

low stock levels and ill-designed policy responses, also contributed to the rapid increase

and volatility of food prices on both world and domestic markets.

Higher prices for food and energy have raised inflationary pressures

The rapid growth of the world economy in recent years has strained the capacity of oil

markets, resulting in an unprecedented price rise. Since 2001 the price of oil rose from

USD 20 per barrel to a peak of around USD 150 in July 2008, with prices more than doubling

between January 2007 and mid-2008 (Figure 1.2). The rise was initially demand driven, but

more recent increases were fuelled by a combination of supply concerns and financial

factors. Higher oil prices had a flow on effect into other costs. While freight rates fell during

2005, they too have more than doubled since the beginning of 2006. There has also been a

steep rise in the cost of fertiliser. Oil prices fell sharply during the latter half of 2008, but are

likely to remain volatile as markets assess the net balance of competing effects, such as the

downward price pressure that may ensue from the financial crisis and the upward pressure

from low stocks, limited spare capacity, supply disruptions and uncertainty over the

exploitation of new reserves and the development of non-oil sources.

Higher global food and energy prices contributed to upward domestic price pressures

in many countries, threatening past gains in stabilising prices. The 2007 edition of this

report noted the impressive progress made by the emerging economies in bringing

inflation under control during the period 2000-05. While staying within the “normal” range

during 2006 and 2007, inflation rates rose during 2008 in all countries, but particularly in

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Figure 1.2. Changes in nominal prices for selected energy, fertiliser and freight costs since 2005


1. Except for freight for which April 2005 = 100.Fertiliser: DAP, US Gulf, USD/tonne; Oil: UK Brent, USD/barrel; Freight: IGC Grain Freight Index.

Source: IMF, International Financial Statistics, 2008; International Grain Council, 2008.statLink 2 http://dx.doi.org/10.1787/528561535132

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Figure 1.3. Inflation, consumer prices, annual average, 2000-08Per cent

The inflation rate for 2008 is the average for the nine month period January-September.

Source: OECD MEI Database, 2008; IMF, International Financial Statistics, 2008.statLink 2 http://dx.doi.org/10.1787/528611511736

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Ukraine, Russia, South Africa and China (Figure 1.3). Some of these economies were

affected by domestic food supply and demand imbalances. For example, in South Africa,

domestic prices for wheat and maize (a staple food for most of the rural population)

increased significantly because of bad harvests in 2006 and 2007. The long term impact will

also be heavily influenced by the financial crisis which swept the world in the latter half of

2008 (Box 1.1).

The impact of higher prices on the wider economy is determined by a number of

structural characteristics. At the country level, low income food importing countries that

rely heavily on tradable cereals for their diets are the most vulnerable to global food price

shocks. None of the seven emerging economies fit into this category. Nevertheless, within

each country the sharp rise in prices for staple foods has a significant impact on the poor

who are net food buyers. The poor experience a further deterioration of their dietary

quality and nutritional intake, and the number of poor and hungry rises. Estimates of the

global increase in the number of poor due to the food crisis are converging on a figure of

around 100 million persons, an increase of 3%-5%.1 According to the World Bank, this will

Box 1.1. Potential impacts on agriculture of the financial crisis

The impacts of higher food and fuel prices are likely to be compounded by the globalfinancial crisis that developed in the latter half of 2008. While the outcome of various co-ordinated efforts by political leaders and their financial authorities to address issues ofliquidity, solvency and recapitalisation is still unknown, the impact of the financial crisismay have a number of effects on agriculture. Directly it will:

● Reduce the availability of loans – lenders will want more equity and collateral beforeapproving loans. This will not only affect producers but also processors, traders andretailers who rely on credit.

● Increase the cost of borrowing through higher interest rates.

● Reduce the level of foreign direct investment – which is crucial for the development ofemerging economies.

In the context of the spreading recession, it will indirectly:

● Put additional downward pressure on prices – while this may be beneficial forconsumers and reduce input costs for producers, it sends a signal to decreaseproduction which may lead to future shortages in supply, increasing both the level andvariability of prices.

● Put pressure on government budgets (through reduced tax revenue and higherborrowing costs) – this may lead to a reduction in expenditure on items not related tocurrent concerns such as research and development, although expenditure oninfrastructure may rise as governments try to stimulate economic recovery.

● Reduce the level of remittances – which can be an important source of finance fordeveloping countries.

● Potentially reduce official development assistance – as OECD governments faceincreasing deficits, they may be tempted to reduce ODA spending.

● Increase pressure to raise protectionism – which would increase price variability onworld markets and reduce trading opportunities.

● Reinforce an orientation towards self-sufficiency in food production – which would leadto a reallocation of resources away from their most efficient use.

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be associated with an increase in the number of undernourished persons in the world from

848 million in 2004 to 967 million by the end of 2008 (WB, 2008a). Of the seven emerging

economies, India is probably the most vulnerable, having a higher rate of

undernourishment, above the world average of 14% of the total population.

While producers are likely to benefit from higher international agricultural prices, and

to respond by increasing production, higher world prices do not necessarily translate

directly into higher domestic prices. First, the degree of price transmission depends on

several factors, including currency exchange rates, trade openness, the efficiency of

markets and government policies for price stabilisation. The same factors play a role when

international prices are declining, as observed for most agricultural commodities in the

second half of 2008. Second, producers have faced increased production costs, in particular

for energy based inputs (fuels, fertiliser, irrigation, freight charges, etc.). While the share of

energy in the cost of crop production is around 4% in most developing countries, it is

between 8% and 20% in some large countries such as Brazil, China and India. Labour costs

are also increasing in some economies as workers demand wage increases to compensate

for higher food prices. In addition, livestock producers have incurred significant increases

in feedstock costs.

Main changes in agricultural policies

This section describes the major agricultural policy developments in the seven

emerging economies during 2006-08. The first part describes the policy measures taken to

reduce inflationary pressures associated with higher food prices and to address food

security issues. The second part briefly outlines other major policy changes in each

economy.

Government responses to higher food prices

Along with a large number of other countries, the seven emerging economies made

various policy interventions in response to higher food prices. Table 1.1 summarises these

different measures in terms of their orientation: whether policies are directly orientated to

affect consumers, producers or trade. Of course, policies oriented to one group will have an

effect on others. A number of these measures were introduced for just a limited period of

time and are no longer in effect. They are described in more detail in the relevant country

chapters.

● The most common policy response taken by the emerging economies – and also

worldwide – has been to reduce or suspend import tariffs on food products. The products

on which tariffs were reduced, and the time and quantity limit varied between

economies, as well as the extent of the tariff reduction. For example, while Brazil has

provided tariff-free access for 2 million tonnes of wheat, the MFN applied tariff is just

6%. Changes of this magnitude can be expected to make only a limited impact on

inflation.

● The next most common response has been to impose export barriers in the form of

export restrictions or export taxes. The measures imposed by India, Russia and Ukraine

were particularly significant given the potential quantities involved. Export barriers are

likely to lower domestic prices for the products concerned but have serious spill-over

effects, impeding price signals to producers and decreasing supplies for importing

countries.

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24 Table 1.1. Policy measures taken by governments to reduce the impact of higher food prices

ning System (GIEWS) on food and agriculture.

Trade-orientated

ment Import Export

r prices Import tariffs and other

Quantitative export controls

Export price controls and tax measures

prices ason

Reduced tariffs on wheat, sardines, palm kernel oil and some fertilisers; eliminated the merchant marine levy on wheat and flour

wheat

Reduced tariffs for a variety of products including pigmeat, cod fish, infant food, soybean and peanut meal

Imposed export licences on grains, soybean and flour

Suspended VAT export rebates on grain and grain products, later reinforced by provisional export taxes on grains, soybeans, flour and fertilisers

prices trading ltural

Removed tariffs on wheat, rice, maize and pulses

Export ban on wheat, corn, pulses and non-basmati rice

Introduced minimum export price and duty on basmati rice

Reduced tariffs on milk and milk products, cheese, some types of vegetable oil and vegetables;lifted duties on poultry and eggs imported for breeding purposes

Introduced temporary ban on exports of wheat to Belarus and Kazakhstan

Introduced export taxes on grain

Removed tariffs on maize if the world price is greater than USD 110 for more than two weeks

Granted preference to state trading enterprises

Export quotas for grains and oilseeds

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Source: OECD Secretariat, 2008. The table structure is based on that developed by the FAO Global Information and Early War

Consumer-orientated Producer-orientated

Macroeconomic Social Market Production support Market manage

Interest and exchange rates

Food subsidies and other

Price controls and taxes Release stocks

Food procurement and

otherProducer credit and other Minimum produce

and other

Brazil Increased interest rates

Lowered the excise tax on petrol and diesel

Released stocks of beans, maize and wheat

Increased funds to raise the level of safety stocks

Increased access to credit and expanded extension services

Increased minimumfor 2008/09 crop se

Chile Increased interest rates

One-off cash bonus for the 40% poorest

China Allowed the CNY to appreciate

Price controls on cooking oil, pork, eggs, instant noodles, milk, grains, natural gas, gasoline and electricity

Released stocks of grain

Stopped approval for any new grain-based biofuel processing plant

Increased subsidies for the purchase of farm machinery, fuels, fertilisers and improved seeds

Increased minimumpurchase prices forand rice

India Increased interest rates

Increased food subsidies

Administratively fixed prices of key food products for public distribution kept unchanged

Efforts to secure sufficient supplies of grain for buffer stocks

Increased input subsidies particularly for fertilisers

Increased minimumand banned futureson a range of agricucommodities

Russia Increased interest rates

Price freeze on wheat and rye bread, milk and fermented milk, sunflower oil and eggs; voluntary price restraint agreement

Released stocks of grain

Fuel subsidies to mitigate higher energy prices; additional per tonne subsidies for pigmeat and poultry

South Africa Increased spending on the food package programme

Lowered the biofuel target level in liquid fuel from 4% to 2.5%

Ukraine Mark-up limits on flour and retail price limits on breads, voluntary price restraint agreements

Released stocks of grain, flour,sugar and meat

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● Another common response was to release government held stocks, particularly of grains,

on to the domestic market to ensure supply and reduce upward price pressure. Many

governments used up a large proportion of their buffer stocks during 2007-08.

● Another response has been to stimulate domestic production by raising minimum prices

and expanding input subsidies. The increase in minimum prices may indicate a failure

in the transmission of market price signals to farmers, which in turn could be due to

other policy decisions, or it may reflect efforts to rebuild government stock holdings. The

expansion of input subsidies reflects initiatives to counteract the increase in energy

costs. These policies take time to work through the system and do little to reduce the

position of the most vulnerable in the short run.

● Retail price controls have been introduced in China, Russia and Ukraine.

● China and South Africa made changes to their biofuel policies to reduce pressure on food

security.

● Chile and South Africa provided additional direct transfers to those most vulnerable to

the effect of higher food prices: a cash-based transfer in Chile and the provision of food

in South Africa.

The varying responses of the seven economies reflect differences in their net trading

positions (Figure 1.4), income levels, distribution of poverty, share of expenditure on food, and

government economic policy. The contrasting responses of Chile and China illustrate this. In

comparison with China, the response in Chile has been quite muted reflecting the fact that

Chile is a net exporter while China is a net importer; income per capita in Chile (measured in

PPP USD) is 2.5 times higher than in China; the share of expenditure on food in Chile is around

half the level in China; and the level of state involvement in the market is minimal in Chile.

Figure 1.4. Agricultural and food trade balance, 1995 and 2007

Data for Russia and Ukraine is for 1996 instead of 1995; data for South Africa is for 2000 instead of 1995.Source: UN, UN Comtrade Database, 2008; OECD calculations based on national data, 2008.

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Other changes reflect differing policy objectives among the emerging economies

During 2006-08, a number of new policy measures and major changes to existing

policies were introduced in each of the seven economies:

● Brazil – Prior to the introduction of policy measures to deal with rising food prices, a

number of measures were introduced in 2006 to deal with falling producer incomes.

Lower output prices, attributable in large part to the appreciation of the Real against the

USD, and higher production costs as well as localised droughts, pest and disease

outbreaks were causing financial hardships for many farmers. In response, the

government introduced a new payment based on output, expanded credit facilities and

deferred debt repayments on investment and working capital for a period of one year

(which was further rolled over in 2007). Of particular note was the extent to which these

measures were introduced to support soybean producers.

● Chile – Stronger emphasis was put on credit programmes for small-scale agriculture.

These programmes are designed and co-ordinated by the National Institute of

Agricultural Development (INDAP) with the purpose of increasing credit allocations to

smallholders from the private financial sector. In 2007, investments in general services

increased to account for more than a third of total expenditures to support agriculture.

● China – Agricultural tax reform was completed in 2006 and a new Property Law adopted

in 2007 strengthened farmers’ legal rights to land. However, farmers are still prohibited

from raising a mortgage on the land, which limits access to credit. Pilot insurance

schemes have been introduced for grain and livestock producers, with the cost shared

between central government, local government and farmers. Stronger support for

farmers is part of a wider programme of improving access to basic services such as

education, health care and social security for the rural population.

● India – Improvement of rural infrastructure has been given a high priority to make

India’s growth “more inclusive and equitable”. A large part of this rural investment is to

be undertaken within a programme Bharat Nirman focussing on the expansion of

irrigation area, improved water management, support for rural roads, housing,

electrification, telecommunication, research and diversification of economic activities.

The National Policy for Farmers, introduced in 2007, places greater emphasis on the

economic well-being of farmers and rural development rather than just on agricultural

production. In 2006, a new package was introduced to revive the short-term rural co-

operative credit structure and to expand credit available to farmers at preferential

interest rates. In 2008, the government announced a large scheme to waive overdue and

unpaid debt, initially for small and marginal farmers, but then extended to include

commercial producers.

● Russia – As part of a broader administrative reform process, the roles and

responsibilities of central and regional governments in the delivery and financing of

agricultural programmes were defined more clearly, and a multi-year overarching

framework for the delivery of agricultural policy was introduced. With twin aims of

stimulating agricultural production and improving rural areas through technological

modernisation and investment in social infrastructure, there has been a significant

expansion in concessional credit.

● South Africa – Following an evaluation of the performance of its land, agriculture and

rural sector policies, the government adopted three new measures to accelerate the pace

of land redistribution: the Land and Agrarian Reform Project (LARP) provides a new

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Framework for delivery and collaboration on land reform and agricultural support to

accelerate the rate and sustainability of transformation through aligned and joint action

by all involved stakeholders; the Pro-Active Land Acquisition Strategy (PLAS) under

which the government proactively identifies, purchases and distributes land in terms of

established needs; and Sourcing Strategic Partners (from key non-governmental

stakeholders) that will speed up land delivery, and more importantly, ensure stability of

the farms and projects delivered, by providing skills and expertise that are currently

lacking in the public service.

● Ukraine – The main driver of policy changes over the period was the long awaited

accession to the WTO in 2008. Many modifications in national legislation were

implemented to comply with the WTO requirements. Prior to accession, tariffs had been

reduced substantially for key commodities such as pigmeat, poultry and sugar. An

attempt is being made to improve co-ordination regarding the formation and

implementation of agricultural policy measures.

While negotiations for Russia’s accession to the WTO have reached an advanced stage,

particularly in terms of market access, the remaining issues include determining the level

of agricultural domestic support commitments. At the multilateral level, agriculture

remains one of the areas of continuing difficulty in the WTO negotiations. In June 2008,

ministers from WTO member countries failed to conclude a final agreement in the Doha

round of negotiations. An impasse was reached on the terms that would govern Special

Safeguard Mechanism remedies, with some developing countries, notably China and India,

arguing that they needed additional flexibility, including the right to raise tariffs above

bound rates – a position that could not be reconciled with demands for improved access to

developing country markets.

All seven emerging economies have been engaged in bilateral and regional trade

negotiations during 2006-08. Among the most significant to be concluded, or in which

substantive progress was made, were agreements between: Ukraine and the European

Union (EU); India and the Association of South East Asian Nations (ASEAN), and with the

EU; China and Pakistan, and with New Zealand; South Africa, as part of the Southern

African Development Community, and the EU; and Brazil, as part of Mercosur, with

Venezuela, Chile and Israel.

Developments in agricultural support

This section examines agricultural support estimates for six of the seven emerging

economies in this report (support estimates are not available for India because the

government of India does not participate in the review process). These estimates form the

basis for a comparative evaluation of policy developments in each country and cover the

period 1995 to 2007. The effects of policy changes made in 2008 discussed in the previous

section are not captured by these estimates. Annex A contains definitions of the OECD

indicators of agricultural support, a description of the new PSE classification system

introduced in 2007 and used in this report, and technical updates and improvements made

to the measurement of support in each of the six economies.

Producer support is provided at a relatively low level

The percentage Producer Support Estimate (%PSE) is the key indicator used to measure

the level of support to agricultural producers. It expresses the estimated monetary value of

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policy transfers from consumers and taxpayers to producers (defined as the PSE) as a

percentage of gross farm receipts. The %PSE is useful for analysing changes in the level of

support both over time and between countries.

For all six emerging economies, the level of producer support as measured by the %PSE

has been lower than the OECD average for all years of the past decade (Figure 1.5). In 2005-07,

the value of policy transfers to producers represented 4% of gross farm receipts in Chile, 6%

in Brazil and South Africa, around 9% in China and Ukraine, and 14% in Russia. This

compares with an average level of producer support in the OECD area of 26% in 2005-07.

Russia, with the exception of 1999 (a year following the 1998 financial crisis), has the

highest level of producer support among the six emerging economies being evaluated in

this study.

Trends in the level of producer support over time vary between economies. In Chile and

South Africa, the level of producer support has fallen from around 10% in the mid-1990s, to

4% and 7% respectively in 2005-07. While the level of producer support in Brazil has been

relatively constant at about 5% during the current decade, this represents a slight rise from

the mid-1990s when policies effectively taxed the sugar cane/ethanol sector. Since the late

1990s, there has been a steady rise in producer support in China, which has stabilised at

around 9% in recent years. The level of support to agricultural producers in Russia has been

steadily rising over the current decade, from around 5% of farm receipts in the early 2000s

to 14% in 2005-07, although it remains below the 1995-97 level of 19%. Ukraine has the

greatest variability in producer support levels from year to year. Even as recently as 2003,

agricultural producers in Ukraine were being “taxed” rather than supported by government

policies.

Figure 1.5. Evolution of producer support levels, 1997 to 2007%PSE

Source: OECD, PSE/CSE Database, 2008.statLink 2 http://dx.doi.org/10.1787/528674576343

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Between 2006 and 2007, the monetary value of policy transfers from consumers and

taxpayers to producers (PSE) decreased in all six economies (Table 1.2). With the exception

of Brazil, the reduction in the value of support to producers was driven by a fall in market

price support (MPS) – the value of transfers arising from policy measures that create a gap

between domestic market and border prices such as tariffs, minimum guarantee prices

and export subsidies. In Brazil, an increase in MPS was more than offset by a decline in

budgetary and other transfers (e.g. transfers arising from preferential credit) to producers.

Brazil was also the only economy to have a decline in budgetary and other transfers: in

other economies the increase in budgetary and other transfers came predominately

through an increase in transfers based on input use.

The change in MPS is further broken down in Table 1.3a and 1.3b in order to understand

better the main drivers behind annual changes in MPS in each emerging economy. In four of

the six economies (Brazil, China, Russia and Ukraine), the main driver for the change in MPS

was a variation in the quantity of production supported by MPS policies: this increased in

Brazil, but decreased in the other three. In contrast, changes in the average unit MPS (gap

between domestic and border prices measured at the farm gate) were the most important

cause of lower MPS in Chile and South Africa (Box 1.2). A rise in the unit MPS means that the

gap between domestic and border prices increased, while a fall indicates that the gap

decreased. While out-weighed by the fall in quantity, there was also a large increase in the

unit MPS in Ukraine. In OECD countries, overall developments in MPS were mainly the result

of decreases in unit MPS, which were in turn driven by increases in border prices.

In all six economies the average border price rose when measured in both national

currency and in US dollars. For Brazil, Chile, China and Russia, the appreciation of the

national currency against the US dollar partly offset the increase in border prices measured

in US dollars, while in South Africa, the depreciation of the Rand against the US dollar led

to a larger increase in average border prices measured in national currency. In Ukraine,

there was little change in either the US dollar border prices or the exchange rate.

Table 1.2. Contribution to the change in Producer Support Estimate, 2006 to 2007

1. Per cent change in national currency.2. A (area planted) / An (animal numbers) / R (revenue) / I (income).3. An average of per cent changes in PSE for individual OECD countries (with EU25 as one), weighted by the value of countries’

OECD total PSE in the previous year; not equivalent to the variation in OECD PSE in any other common currency.


Contribution of: Contribution of budgetary and other transfers (BOT) based on:

Producer Support Estimate (PSE)

MPS BOT Output Input use

Current A/An/R/I2

production required

Non-current A/An/R/I

production required

Non-current A/An/R/I

production not required

Non-commodity

criteriaMiscel

USD million, 2007

% change1 % change in PSE if all other variables are held constant

Brazil 5 374 –4.9 6.8 –11.6 4.9 –17.7 1.2 0.0 0.0 0.0 0

Chile 285 –5.2 –15.2 10.0 0.0 11.3 –1.2 0.0 0.0 0.0 0

China 50 208 –3.0 –20.2 17.3 0.0 11.3 5.5 0.0 –0.3 0.7 0

Russia 7 880 –22.6 –37.8 15.3 1.1 10.8 0.2 0.0 0.0 0.0 3

South Africa 457 –47.6 –50.6 3.1 0.0 3.8 –0.7 0.0 0.0 0.0 0

Ukraine 1 175 –56.6 –72.1 15.5 10.1 9.4 –4.0 0.0 0.0 0.0 0

OECD3 258 236 –3.9 –3.4 –0.5 –1.2 0.9 –1.1 0.2 1.0 –0.4 0

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Producer support is provided through measures which support commodity output or input use

In addition to the level of support, it is also instructive to analyse the composition

of support, showing the different ways in which support is provided. As in most OECD

countries, support based on commodity output (MPS and payments based on output) is

an important way in which transfers are delivered to producers in the six emerging

economies, particularly in Russia, South Africa and Ukraine (Figure 1.6). In the emerging

economies this almost exclusively takes the form of transfers associated with MPS

policies, primarily import protection, with only Brazil, Russia and Ukraine providing

payments based on output. In contrast to most OECD countries, a considerable portion

of support is provided to agricultural producers in the six emerging economies through

Table 1.3a. Contribution to the change in Market Price Support, 2006 to 2007

1. Per cent change in an economy’s total MPS is the average of per cent changes in MPS for individual commoditiesin national currencies, weighted by the shares of individual commodity MPS in an economy’s total MPS in theprevious year.

2. An average of per cent changes in MPS for individual OECD countries (EU25 as one), weighted by the value ofcountries’ MPS in OECD total MPS in the previous year.


Market Price Support (MPS)Contribution to % change in MPS of:

Quantity Unit MPS

% change1 if all other variables are held constant

Brazil 22.4 19.9 2.5

Chile –55.3 –17.3 –38.0

China –48.9 –46.3 –2.6

Russia –47.7 –40.6 –7.1

South Africa –58.4 6.8 –65.2

Ukraine –172.0 –240.3 68.3

OECD2 –6.6 1.7 –8.3

Table 1.3b. Contribution to the change in border price, 2006 to 2007

1. Border price at farm gate, i.e. price excluding marketing margins between border/wholesale market and farm gate.2. Per cent change in an economy’s border price is the average of per cent changes in border prices for individual

commodities in national currencies, weighted by the shares of individual commodity MPS in an economy’s totalMPS in the previous year.

3. An average of per cent changes in border price for individual OECD countries (EU25 as one), weighted by the valueof countries’ MPS in OECD total MPS in the previous year.


Border price (national currency)1

Contribution to % change in border price of:

Exchange rate Border price (USD)

% change2 If all other variables are held constant

Brazil 17.7 –12.2 29.9

Chile 46.4 –1.8 48.2

China 11.7 –4.9 15.9

Russia 15.3 –6.6 21.9

South Africa 51.9 5.1 46.8

Ukraine 1.5 0.0 1.5

OECD3 15.0 –4.6 19.6

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Box 1.2. Why does the PSE change when world prices change?1

Support levels as measured in the PSE framework tend to fluctuate over time, a large partof which can be attributed to fluctuations in the MPS component of the PSE.

The calculation of the MPS for a given commodity is based on the gap between theproducer price (at the farm gate) and the border price equivalent (adjusted for marketingmargins) in the country concerned. A major source of fluctuations in the MPS is thevariability of world market prices for agricultural commodities. Another source isvariability of exchange rates, as world market prices (at the border) and domestic priceshave to be expressed in the same currency.

The PSE indicator reflects the nature of policy and the changes in support due to policy.It is tempting to think that the indicators should remain constant if policy settings havenot changed. However, by picking up the variability of world market prices and exchangerates, the PSE rightly reflects the policy design characteristics that lead to a dependence ofsupport levels on market developments. In the absence of price support policies, and withrapid adjustments in markets, the producer price would be aligned with the border price(adjusted for marketing margins), and would therefore move up and down with changes inworld market prices and exchange rates.2 Fluctuations in policy transfers arise whendomestic prices are supported by domestic and border measures that impede thetransmission of changes in world market prices to the domestic market. There aredifferent policies regarding the transmission of world market changes to the domesticmarket, and the MPS properly reflects such differences.

For example, if an importing country has only an ad valorem tariff, then its domesticmarket price moves up and down with the world market price (although domestic pricesremain higher than those on the world market). Consequently the gap between border anddomestic prices remains constant and the per unit MPS would show no fluctuation.Alternatively, if an importing country operates a mix of policy measures which keepsdomestic prices constant, then the gap between border and domestic prices will fall whenworld prices rise, and vice versa. Equally, per unit MPS will rise (fall) when the exchangerate appreciates (depreciates). Similarly, a country providing a deficiency payment (apayment based on output) to maintain a constant domestic target price makes smallerbudget expenditures when the border price is high (including due to exchange ratevariations), and vice versa. In this case, the PSE calculations will show a change in the levelof payments based on output rather than of MPS.

The fact that MPS in the above examples behaves differently over time is an appropriatereflection of differences in policy implementation.

In brief, the PSE is an indicator of the transfers associated with agricultural policies,including those resulting from keeping producer prices in the domestic market stablewhile world market prices and exchange rates fluctuate. The indicator provides anequivalent measurement of all types of policies that insulate producer prices from marketfluctuations. In particular, the method treats market price support and deficiencypayments in the same way.

1. For a more detailed discussion on this topic see Tangermann, S. (2005).2. In the reality of complex market situations, pass-through of a given change in the border price to the

domestic market may be imperfect and may take some time. However, this does not change thefundamental point that in the absence of price support policies or other barriers, domestic market pricesfor tradables would respond to changes in international prices and exchange rates.

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payments based on input use (interest concessions, fertiliser subsidies, etc), with

comparatively less use made of other payments, such as those based on land, animals

or income.

While support based on commodity output decreased in importance for the OECD as

a whole between 1995-97 and 2005-07, it increased in importance for four of the six

emerging economies. Only in Chile and South Africa did support based on commodity

output fall as a share of gross farm receipts between the two periods; hence it is the main

factor contributing to the reduction in the level of producer support in both countries. In

China and Russia there was a rise in support based on commodity output. While this led to

a rise in the level of producer support in China, in Russia the level of support has fallen

because of a reduction in other forms of support, most notably transfers associated with

debt restructuring. Brazil and Ukraine both had significantly negative commodity based

support in 1995-97. This has changed, with producers in both countries benefiting from

support based on commodity output leading to an increase in the %PSE, but in Ukraine MPS

was again negative in 2007.

These changes in support based on commodity output are also quite clearly shown by

changes in the producer Nominal Protection Coefficient (producer NPC): the ratio between

the producer price (including payments per unit of output) and the border price. This

highlights the degree to which policies increase prices received by domestic producers. The

average producer NPC for the OECD area was 1.20 for the period 2005-07, meaning that in

the OECD farmers received, on average, prices that were 20% above international levels

(Figure 1.7). In 1995-97 prices were 30% higher (NPC of 1.30), indicating that the gap

between domestic and world prices has fallen by about one-third on average across all

commodities across the OECD.

Figure 1.6. Composition of producer support, 1995-97 and 2005-07%PSE


-20 -15 -10 -5 0 5 10 15 20 25 30

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

Chile

Braz

ilCh

ina

Sout

hAf

rica

Ukra

ine

Russ

iaOE

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MPS + payments based on output Payments to inputs Other payments

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The gap between domestic and international prices also fell in Chile and South Africa

between 1995-97 and 2005-07, although producer prices in Chile are, on average, more

closely aligned with world prices than in South Africa. In contrast, producer NPCs for

Russia and China have increased, implying a greater misalignment of domestic prices

vis-à-vis world market levels. In Brazil and Ukraine, the situation is more complex. In 1995-97,

producers received on average prices that were around 10% lower than world prices

(negative NPCs): in 2005-07, producers received prices 3%-4% greater than world prices

(positive NPCs). Consequently, while the producer NPC increased in both Brazil and

Ukraine, average producer prices are now more closely aligned with world prices than in

1995-97.

Producer support is often concentrated on a few commodities

The composition of support can also be analysed from the standpoint of the flexibility

that policies accord to producers in determining production choices. For example, a

payment designated for one specific commodity implies that in order to receive payment a

farmer must produce that commodity. In contrast, payments may be provided to a group of

commodities, i.e. any crop belonging to the cereals group, simply to any commodity

without distinction. The prevalence of transfers directed to single commodities – as

reflected by the share of Single Commodity Transfers (SCT) in the PSE – conveys important

information on the flexibility given to producers in their production choices.2

The share of SCT in the PSE for the OECD countries fell from 74% in 1995-97 to 59% in

2005-07, driven mainly by a fall in MPS (Figure 1.8). Among the emerging economies,

around 70% of producer support in South Africa and Russia is provided through single

commodity transfers, indicating little production flexibility for farmers if they want to

retain support. In contrast, less than 30% of support in Chile and China is provided in this

form. Around 50% of producer support in Brazil and Ukraine is provided through transfers

designated for a specific commodity.

Figure 1.7. Producer Nominal Protection Coefficients, 1995-97 and 2005-07


0.8 0.9 1.0 1.1 1.2 1.3 1.4

Chile

Brazil

Ukraine

China

South Africa

Russia

OECD

2005-071995-1997

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It is also instructive to look at the extent to which farmer’s receipts for a particular

commodity depend on the Single Commodity Transfers (the %SCT indicator). This

measures the estimated monetary value of SCT for a commodity as a share of gross farm

receipts for that commodity. While the level of support to agricultural producers in the

emerging economies is below 10% of gross farm receipts for the sector as a whole, with the

exception of Russia, there are commodities in each economy where SCTs account for a

substantial share of farmers’ receipts (Table 1.4).

Sugar appears in the list for all countries, with the exception of Brazil. There is no

consistent pattern of support for any other commodities across the emerging economies,

reflecting differences in production and consumption patterns and policy objectives. For

example, it is mainly crops that receive SCT support in China, while it is mostly livestock

Figure 1.8. Single Commodity Transfers as a share of PSE, 1995-97 and 2005-07

Data is not presented for Brazil and Ukraine for the years 1995-97 because SCT was negative in these countries duringthis period. For China, SCT as a share of PSE was just 0.1% for the years 1995-97.


0 10 20 30 40 50 60 70 80 90 100

Chile

China

Ukraine

Brazil

Russia

South Africa

OECD

Share of Producer SCT in Total PSE (%)

2005-071995-97

Table 1.4. Single Commodity Transfers by commodity, 2005-07

Source: OECD, PSE/CSE Database, 2008.

%PSESCT as per cent of gross farm receipts for each commodity

10%-20% 20%-30% 30%-40% Over 40%

Brazil 5.8 Cotton Rice

Chile 4.4 Sugar

China 9.2 Soybean, Sheepmeat Maize Sugar Cotton

Russia 13.9 Milk Beef and veal, Poultry Sugar, Pigmeat

South Africa 5.7 Sugar, Sheepmeat

Ukraine 9.9 Beef and veal Pigmeat, Sugar Poultry

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products in Russia and Ukraine. Brazil, Chile and South Africa, the three emerging economies

with the lowest level of producer support, have only one or two commodities with a %SCT

value above 10%, although the level of support for cotton and rice in Brazil is relatively higher.

Relative importance of support to general services is increasing in some economies but falling in others

In addition to support provided to producers individually (PSE), the agricultural sector

is assisted through public financing of services such as agricultural research and

development, training, inspection, infrastructure, marketing and promotion, and public

stockholding. The General Services Support Estimate (GSSE) measures the value of the

associated transfers. Some of these expenditures constitute potentially important areas of

public investment, which may in the long run improve the competitiveness of the

agricultural sector and yield higher and sustained returns to farmers than commodity

price support or input subsidies.

The share of GSSE in total support (%GSSE) indicates the relative importance of these

transfers within overall support to the agricultural sector. The six emerging economies

spend a greater proportion of total support on general services than for the OECD as a whole

(Figure 1.9). In South Africa, over half of total transfers to agriculture are categorised as GSSE,

which represents about one-third of transfers in Chile, and one-quarter in Brazil and China.

During the current decade there have been divergences among economies in terms of

changes in the relative importance of expenditure on general services. In Brazil and South

Africa, the level of producer support is low and stable; however, the relative importance of

Figure 1.9. Level and composition of General Services Support Estimate, 2000-02 and 2005-07

Share of Total Support (%GSSE)

1. For Ukraine, data for 2000-02 is not presented because the TSE was negative in 2002.


0 5 10 15 20 25 30 35 40 45 50 55 60

2005-07

2000-02

2005-07

2000-02

2005-07

2005-07

2000-021

2000-02

2005-07

2000-02

2005-07

2000-02

2005-07

2000-02

Russ

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Ukra

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Chin

aCh

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%

Infrastructure Research and Development Other GSSE

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GSSE expenditures has decreased in Brazil but increased in South Africa. Expenditure on

general services has also become relatively more important in Chile, where producer

support has fallen since 2000. GSSE expenditure has not kept pace with the increase in

producer support in China; the %GSSE falling from 43% to 27% between 2000-02 and 2005-07.

In Russia, by contrast, GSSE expenditure has kept pace with the increase in producer

support and the %GSSE remained almost stable.

In all six emerging economies, expenditure on infrastructure to support agriculture

(irrigation, drainage, farm consolidation, etc.) is one of the major categories of GSSE

category of expenditure. A significant portion goes to research and development in Chile

and South Africa, although in Brazil expenditure on research and development has fallen

in relative importance. Public stockholding is important in China, and there has been a

considerable increase in expenditure on inspection services in Russia and Ukraine.

The total value of support to the agricultural sector is measured by the Total Support

Estimate (TSE), which represents the sum of transfers to agricultural producers

individually (PSE) and collectively (GSSE), as well as subsidies from taxpayers to consumers.

For the OECD as a whole, total transfers arising from agricultural support policies

represented around 1% of GDP in 2005-07, and have fallen over time as non-agricultural

sectors of the economy have grown and support levels to agriculture have fallen (Figure 1.10).

This is not the case for some emerging economies, in particular for China, where, despite the

rapid expansion of the Chinese economy, support to agriculture has risen from about 1.5% of

GDP in 1995-97 to more than 2% in 2005-07. Support to agriculture also imposes a

considerable burden on the economy in Ukraine, with a %TSE of about 2.5%. For the other

four countries, support to agriculture represents around 1% or less of GDP.

Figure 1.10. Composition of Total Support Estimate, 1995-97 and 2005-07Per cent of GDP


-3 -2 -1 0 1 2 3

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

2005-07

1995-97

Chile

Braz

ilSo

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Afric

aRu

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Chin

aUk

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eOE

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%

GSSE Transfers to consumers from taxpayers PSE

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Policy observations and recommendations

Based on the previous sections of this overview, the following policy conclusions and

recommendations can be drawn:

● The level of support to agricultural producers in the emerging economies is relatively

low compared to that provided in many OECD countries. However, there are certain

commodities in each economy that benefit from a greater amount of support than

others, with sugar being an obvious example in many cases. This provides a strong

incentive to farmers to retain production of these commodities, diverting more

resources such as land, labour and fertilisers into their production than would otherwise

be the case. As governments consider policy measures to increase food production in

response to higher food prices, they should consider reducing support for some

commodities which are attracting more resources than they would otherwise because of

current policy settings.

● The imposition of export barriers in response to higher food prices, while reflecting

legitimate concerns about food security, does not target those most in need and is likely

to undermine producers’ supply response. Moreover, while they may reduce the risks of

food shortages in the short term, they are likely to make international markets smaller

and more volatile. Export bans undermine trust in trade and encourage self-sufficiency

driven policies in importing countries. Export restrictions have harmful effects on

import-dependent trading partners. For example, export restrictions on rice in India

affected Bangladeshi consumers adversely and also dampened the incentives for rice

farmers in India to invest in agriculture, which is a long-term driver of growth. They also

impede the transmission of price signals to domestic producers. For example, export

quotas involved substantial foregone revenue in the grain and oilseed sectors, and

reduced Ukraine’s total export earnings.

● The introduction of export barriers, and their subsequent destabilising effect on world

markets, has drawn attention to the fact that WTO rules do not prevent countries from

imposing such export restrictions and that export taxation is not well disciplined. Weak

rules in this area create uncertainty about the world market as a reliable source of food

supplies.3

● A number of countries have responded to the food price crisis by increasing input

subsidies, particularly for fertiliser, to stimulate production. While prices for energy

based inputs have certainly increased, great care needs to be exercised in the delivery of

these policies. In particular, it may be sensible to make such increases in subsidies time

bound, or closely linked to international prices so that they are reduced if prices come

back down. Further, appropriate regulations and extension services need to be provided

and enforced to ensure that the increased use of chemical inputs does not lead to further

environmental damage.

● Efforts are being made to improve the delivery of agricultural policy in a number of emerging

economies, through administrative reform, the rationalisation of policy measures, the

establishment of co-ordinated multi-year frameworks, and the introduction of private sector

expertise and skills, among other initiatives. These are all welcome developments as

consistency and transparency are vital for the success of any policy regime.

● Initiatives to introduce or expand insurance opportunities for farmers are also positive

steps. Insurance schemes, if successful, can reduce the need for market intervention and

assist farmers develop appropriate risk management strategies. However, when heavily

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subsidised, insurance schemes can encourage excessive risk taking, leading to an

expansion in production of the commodities covered by the insurance scheme at the

expense of those that are not and the development of farming in areas which are not

suitable for agricultural production, resulting in environmental degradation. When

establishing or reviewing these schemes, governments need to consider carefully whether

subsidies provided for the operation of the scheme can be phased out over a period of

time, so that farmers gradually move towards paying the full costs of the programmes.

● Producer access to credit is vital for the development of agriculture in the emerging

economies. A number of governments have increased the amount of credit available to

farmers, including both commercial and small-scale producers. While the government

can play a vital role in establishing the credit market, more can be done to expand

private sources of credit, particularly to small producers. Rather than simply expanding

government-supported credit, barriers to the expansion of private credit need to be

reviewed and removed if feasible. However, the global financial crisis during the latter

half of 2008 is likely to severely curtail governments’ opportunities for doing this.

● A number of governments have taken steps during the period to either defer repayment

of producer debt or completely write it off. These actions were taken to address a short

term problem (financial difficulties) but they may worsen a long term structural

deficiency (underdeveloped credit markets) because they can damage the discipline of

credit systems. They can also create an expectation on the part of farmers that the

government will bail them out in the event of future payment difficulties. Furthermore,

such schemes may end up compounding rather than alleviating the debt problem

because they make farmers’ eligible for fresh credit despite not being creditworthy.

● The relative increase in expenditure on general services for agriculture, particularly

infrastructure and research and development, is reassuring. However, significant room

remains for improving the efficiency of public resources by increasing investments on

high-priority public goods. Public investments are needed to ensure that the supply

responses to higher prices can take place and that new strains of crops which deliver

quantum yield increases are developed.

Notes

1. As determined by the standard “dollar-a-day” expenditure definition of the World Bank.

2. SCT includes all market price support and payments based on output – as these forms of supportare specific to a particular commodity be definition – as well as any payments provided to singlecommodities under other categories of support which require commodity production.

3. At present, the WTO provides only minimal disciplines on export restrictions, mainly anotification requirement. Under the current DDA modalities members would be obliged to notifythe WTO of new export restrictions or prohibitions within 90 days of their entry into force, with theduration of these measures limited to 12 months, or up to 18 months if affected importingcountries were to agree.

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© OECD 2009

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Chapter 2

Brazil

Evaluation of policy developments

● Brazil provides a relatively low level of support and protection to agriculture, reflecting its position as a competi

exporter and a relatively open trade policy. While increasing in nominal terms, the level of producer support has b

relatively constant at 5% of gross farm receipts since 2000, with producer prices on average only 3% above world price

● Nevertheless, there is a wide range and growing number of agricultural policy measures. Price supports have been u

extensively, in principle to offer price stability (minimum guarantee prices are set at low levels) and to provide locali

support to smaller “family” farmers. There is also heavy state intervention in the credit system, both creating acces

credit and rescheduling debt commitments.

● After a period of rising producer prices, there was a significant fall in 2005-06, due in part to the appreciation of the real, w

farmers also struggling to cope with localised droughts, pest and disease outbreaks, and rising costs. The government respon

by expanding output support to both family farmers and commercial producers. In particular, the new PEPRO programme w

used to support coffee and soybean producers, products in which Brazil is the world’s leading producer and exporter.

● Progress is being made on integrating small, subsistence producers into the market through targeted governm

acquisition programmes. Market integration is vital to achieving a transition from traditional to modern, commer

agriculture. Further attempts could be made to increase private sector involvement.

● The level of credit provided to commercial farmers continues to rise, with increases in credit limits and a broadening of eligib

requirements. The government is also channelling an increasing proportion of credit to family farmers who are less abl

access commercial lines of credit. As part of the relief package to producers, the government deferred repayment of investm

and working capital credit in 2006 and 2007. These actions, while benefiting farmers in the short term, discourage

development of a functioning credit market, and will lead to an increase in the level of support if market interest rates rise.

● In an attempt to deal with the problem of overdue debt, a major debt restructuring option was offered to farmers in

2008. While the package includes discounts and reduced interest rates, so far there has been little uptake by produc

Resolving the debt issue remains a significant policy challenge.

● The expansion of farm insurance programmes to cover a greater number of crops in both the commercial and fam

farming sectors could, if successful, reduce the need for market intervention in the long run. These programmes mus

carefully evaluated to ensure that farmers pay an appropriate premium level.

● The new Programme for Growth Acceleration (PAC) has the potential to provide a much needed boost to infrastruc

development. However, it relies heavily on private investment, and the current financial crisis may have a severe impact on

success of this programme. Significant investments in infrastructure are needed if Brazilian agriculture is to continue to grow.

government needs to ensure that its investments are channelled into creating markets rather than managing and directing th

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Summary of policy developments

Market price support is provided through a number of programmes based on regionally

announced minimum guarantee prices. These prices remained the same over 2005/06 and

2006/07 for the major crops but were increased significantly in 2008/09 to encourage

production in response to food price increases. New commodity programmes were

introduced to support “family” farmers and commercial producers, with extensive support

provided to soybeans. The volume of subsidised credit available to farmers continued to

increase, and investment and working capital repayments due in 2006 and 2007 were

deferred. Farm insurance programmes were expanded to cover more crops, with the

maximum compensation level per farmer also increasing. Actions taken in response to

rising food prices included reductions in tariffs and other forms of taxes on certain foods, the

release of government stocks of beans and grains, and actions to reduce domestic demand.

● Support to producers (%PSE) averaged 6% in 2005-07,up from –5% in 1995-97, but well below the OECDaverage of 26%.

● Just one-half of producer support in 2005-07 wasprovided through the most distorting forms ofsupport (based on commodity output and variableinput use), with the share increasing over time.

● Support based on commodity output increased by 52%between 2005 and 2007 to a total of BRL 5.5 billion(USD 2.8 billion).

● Prices received by producers were on average 3% higherthan those received on world markets in 2005-07 (NPC).

● Payments based on input use fell by 29% toBRL 4.8 billion (USD 2.4 billion) in 2007. While thequantity of concessional credit provided to farmersincreased and the value of debt deferral rose, theimplicit subsidy provided decreased as a result of afall in market interest rates.

● Rice, cotton, maize and wheat are the most heavilysupported commodities as measured by producerSingle Commodity Transfers (%SCT). The share of STCin total PSE averaged 53% in 2005-07, rising from 46%in 2005 to 63% in 2007.

● The cost to consumers, as measured by the %CSE hasremained fairly stable since the year 2000 in the rangeof 2%-3%.

● Support provided to general services, notablyinfrastructure and agricultural schools, averaged 25%of total support in 2005-07, with the value of GSSEexpenditure falling by 36% between 2005 and 2007.

● Total support to agriculture averaged 0.7% of GDP in2005-07, up from 0.2% in 1995-97, but less than theOECD average of 1%.


Figure 2.1. Brazil: PSE level and composition over time


Figure 2.2. Brazil: Producer SCT by commodity, 2005-07


Support based on commodity output (left scale)

Budgetary transfers (left scale)% Producer Support Estimate (right scale)

-3-2-2-1-1-

11223

-6-5-4-3-2-10123456

% PSMPS and budgetary support, billion USD

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-10 0 10 20 30 40 50

SCT as % of PSEOther commodities

PoultryPigmeat

MilkSugar

Beef and vealSoybean

CoffeeWheatMaize

CottonRice

MPS Payments based on output

Other SCTSCT as % of PS

% of commodity gross farm rec

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033426

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77078

125471511063448774173

0555

0460

186186

000000000005

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74291

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Table 2.1. Brazil: Estimates of support to agricultureBRL million

n.a.: not applicable. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for Brazil are: wheat, maize, rice, soybeans, sugar, cotton, coffee, milk, beef and veal, pigmeat and poSource: OECD, PSE/CSE Database, 2008.


1995-97 2005-07 2005 2006 20

Total value of production (at farm gate) 53 594 184 116 176 572 174 005 201of which share of MPS commodities (%) 73 78 78 78

Total value of consumption (at farm gate) 51 809 140 206 136 398 133 095 151Producer Support Estimate (PSE) –1 659 11 043 11 652 11 006 10Support based on commodity output –4 666 4 451 3 615 4 227 5

Market Price Support –4 741 3 610 3 447 3 320 4Payments based on output 75 841 168 907 1

Payments based on input use 3 007 6 498 7 998 6 722 4Based on variable input use 1 673 1 824 2 553 1 745 1

with input constraints 0 0 0 0Based on fixed capital formation 1 200 4 418 5 067 4 633 3

with input constraints 0 0 0 0Based on on-farm services 134 256 378 344

with input constraints 0 0 0 0Payments based on current A/An/R/I,1 production required 0 94 39 57

Based on receipts/income 0 94 39 57Based on area planted/animal numbers 0 0 0 0

with input constraints 0 0 0 0Payments based on non-current A/An/R/I, production required 0 0 0 0Payments based on non-current A/An/R/I, production not required 0 0 0 0

With variable payment rates 0 0 0 0With fixed payment rates 0 0 0 0

Payments based on non-commodity criteria 0 0 0 0Based on long-term resource retirement 0 0 0 0Based on a specific non-commodity output 0 0 0 0Based on other non-commodity criteria 0 0 0 0

Miscellaneous payments 0 0 0 0Percentage PSE –3 6 6 6Producer NPC 0.92 1.03 1.03 1.03 1Producer NAC 0.97 1.06 1.07 1.06 1General Services Support Estimate (GSSE) 2 914 3 939 4 878 3 808 3

Research and development 483 391 787 188Agricultural schools 192 698 1 492 305Inspection services 109 137 139 162Infrastructure 1 697 2 344 2 088 2 783 2Marketing and promotion 8 86 85 99Public stockholding 425 263 227 271Miscellaneous 0 20 59 0

GSSE as a share of TSE (%)h n.a. 25.6 28.7 24.7 2Consumer Support Estimate (CSE) 2 700 –4 067 –4 680 –3 603 –3

Transfers to producers from consumers 2 944 –4 205 –5 456 –3 560 –3Other transfers from consumers –273 –885 –1 250 –846 –Transfers to consumers from taxpayers 15 434 462 597Excess feed cost 13 590 1 563 206

Percentage CSE 5 –3 –3 –3Consumer NPC 0.95 1.04 1.05 1.03 1Consumer NAC 0.95 1.03 1.04 1.03 1Total Support Estimate (TSE) 1 271 15 416 16 992 15 410 13

Transfers from consumers –2 671 5 091 6 705 4 406 4Transfers from taxpayers 4 215 11 211 11 536 11 850 10Budget revenues –273 –885 –1 250 –846 –

Percentage TSE (expressed as share of GDP) 0.17 0.67 0.84 0.66 0GDP deflator 1995-97 = 100 100 220 210 219

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Policy context: Brazil agriculture at a glance

Agriculture is an important sector of Brazil’s economy. Primary agriculture accounts for 5% of GDPand 18% of total employment. Agro-food exports have grown rapidly since 2002 and account for 28%of exports. With an import share of only 5%, the agro-food sector is responsible for 97% of thecountry’s balance of trade surplus. While the total area used for agricultural production increased byjust 0.4% between 1995 and 2006, the number of farms increased from 4.8 to 5.2 million, leading to afall in the average farm size from 72 to 68 hectares. These figures reflect the dualistic structure ofBrazilian agriculture, with producers (both large and small) that are fully integrated into marketsexisting alongside many subsistence farmers.

Figure 2.3. Brazil: Evolution and annual changes of agricultural

output, 1995-2005


Figure 2.4. Brazil: Agro-food trade, 1995-2007


Table 2.2. Brazil: Basic economic and agricultural indicators, 2005-07

n.a.: not available.1. Data come from the most recent national Consumer ExpenditureSurvey (POF in Portuguese) which is dated 2002-03.2. Of which 76.7 million hectares in crops; 172.3 million hectares inpasture and 99.9 million hectares in woods and forest.


Source: IBGE, 2008; IMF, International Financial Statistics, 2008; MDIC-ALICE, 2008; PNAD, 2008; UN, UN Comtrade Database, 2008; World Bank,World Development Indicators, 2008.

2005 2006 2007

Basic economic indicatorsGDP (USD billions) 882 1 068 1 314GDP growth (%) 2.9 3.7 5.4GDP per capita, PPP (USD) 8 474 8 949 9 570Inflation (annual average, %) 6.9 4.2 3.6Exchange rate (annual average, local currency per USD) 2.4 2.2 1.9Population (million) 187 189 192Population in rural areas (%) 17.2 16.7 16.5Share in GDP (%)

Agriculture 5.7 5.2 5.5Industry 29.3 30.1 28.7Services 65.0 64.7 65.8

Share in employment (%)Agriculture 20.5 19.3 18.3Industry 21.4 21.4 22.0Services 58.2 59.3 59.8

Average share of income spent on food1 (%) n.a. n.a. 17Basic agricultural indicatorsAgro-food exports (% of total exports) 27.2 26.8 27.9Agro-food imports (% of total imports) 4.7 4.9 5.0Agro-food trade balance (USD million) 28 721 32 459 38 865GAO (% change from previous year) –0.3 n.a. n.a.Total cereal production (million tonnes) 55.4 59.1 68.8Total meat production (million tonnes) 20.9 20.0 20.1Natural resources and farm structureAverage farm size (ha) n.a. 68.2 n.a.Agricultural land (million ha)2 n.a. 354.9 n.a.Arable land per capita (ha) 0.3 n.a. n.a.

Land sown to crops (million ha) n.a. 76.7 n.a.

Total GAO (left scale)

Crops (left scale)Livestock (left scale)

Total GAO annual rate of growth (right scale)

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

80

100

120

140

160

1801995=100 Annual rate of growth

05

101520253035404550

USD billion

Agro-food export (including fish and fish products)

Agro-food import (including fish and fish products)

Agro-food balance (including fish and fish products)

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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Policy developments

Main policy objectives and instrumentsThe principal objectives of agricultural policy, reaffirmed in the latest Pluriannual

Plan (PPA) 2008-11, approved in April 2008, are to promote economic development,

environmental sustainability, employment generation and a more equitable income

distribution, and reduce regional inequalities. These broad objectives are implemented

through programmes that often specifically target either the commercially orientated

agro-food sector or poorer farmers and other rural households that are less integrated into

markets. Modifications to programmes and new initiatives are generally set out in annual

Agricultural and Livestock Plans by the Ministry of Agriculture, Livestock and Food

Supply (MAPA).

Producers receive price support through a number of programmes including direct

government purchases at guaranteed prices, although greater use is being made of auction

and tendering systems involving the private sector. The primary purpose of these

programmes is to reduce price instability rather than maintain high domestic prices. Some

programmes do specifically support small and/or medium-scale (“family”) producers who

are considered to be at a disadvantage either because their costs are raised by the

underdevelopment of infrastructure or because of locally depressed incomes. This is done

by restricting the terms under which price supports are applied and by differentiating

prices between regions. Producers receive input support through preferential credit

arrangements including administrative requirements to allocate credit resources to

agriculture, controlled interest rates at below market levels, and debt rescheduling.

Intervention in the credit market is justified on the grounds that it offsets high market

interest rates that are the result of macroeconomic instability and provides access to credit

for the rural poor who would not otherwise be able to obtain credit.

The National Programme for the Strengthening of Family Agriculture (PRONAF) was

introduced in 1995 to provide long-term benefit to small holders – including subsidised

credit, training and extension, and the promotion of value-added activities. With the

adoption of the Zero Hunger (Fome Zero) programme in 2003, support for family farming

became part of a broader objective of combating hunger and poverty in Brazil. The current

land reform programme, the Second National Agrarian Reform Plan (PNRA II) was also

launched in 2003. Its broad aim is to assist the economic development of the poorest

households through the settlement of landless peasants on lands confiscated, purchased

or reclaimed by the government; provision of low interest loans to acquire land; and

funding of community and infrastructure-related investments.

Weak infrastructure is a significant bottleneck to agricultural development. Producers

are typically a long distance from their principal markets and face internal logistic systems

that are relatively underdeveloped. The policy challenge of developing the necessary

infrastructure is made more difficult by environmental concerns associated with the

potential destruction of natural ecosystems. The commercial agricultural sector is largely

export orientated. Consequently, there is considerable trade policy emphasis on increasing

market access/reducing international trade distortions through trade negotiations,

improving sanitary and phytosanitary standards and an active involvement in the WTO

dispute settlement process.

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Box 2.1. Food price inflation in Brazil

In the year to December 2007, Brazil’s annual CPI increased by 4.5% (3.1% in 2006) and increasedfurther to a rate of 6.4% by July 2008. Food prices, which account for about one-fifth of Brazil’s CPI,rose by 10.8% in 2007 and by 15.5% in the year to July 2008, compared to an increase of just 1.2% in2006 (Figure 2.5). Food prices fell in August 2008, with the annual CPI for 2008 estimated at 6.5%.The government annual inflation target is 4.5% for the period 2006-09, with lower and upper limitsof 2.5% and 6.5%.

The increase in food prices during 2007 and 2008 was the result of both international marketdevelopments, with Brazil well integrated with global agricultural markets, and increased domesticdemand for food arising from a strong economic performance (Brazil’s real GDP grew by 5.4% in2007 compared to an average annual increase of just 2.5% over 1998-2006). On the supply side,while the planted area for the 2007 harvest had decreased by 1.5%, primarily due to a reduction insoybean plantings because of low prices in 2006, favourable weather conditions resulted in anincrease in cereal production. It is estimated that the area planted to grains increased by 4.4% in2008 to 47.4 million hectares. Further, while farmers have generally benefited from higher outputprices, particularly producers of beans, coffee, maize, milk, soybean and wheat, they have incurredhigher costs, particularly for chemical fertilisers and labour.

Brazil has also been directly affected by the policy actions of other governments, particularly withregard to wheat. Brazil is the world’s largest importer of wheat, with 90% normally sourced fromArgentina due to its proximity and its advantages of being a Mercosur member, i.e. tariff free entry(MFN rate of 10%) and waiver of the merchant marine levy (25% of freight cost). However, sinceMarch 2007 Argentina has imposed quantitative restrictions on the export of wheat, requiringBrazilian importers to source wheat from the United States and pay higher import charges.

The government has taken a number of measures to stem the upward pressure on food prices. At thegeneral macroeconomic level, it has taken steps to reduce domestic consumption pressure by:a) increasing interest rates (through raising the inter-bank lending rate); and b) establishing theBrazilian Sovereign Fund so that a greater share of the increase in revenue from GDP growth ischannelled into savings rather than consumption. In terms of agricultural specific policies, it has:

● Released government stocks of beans, maize and wheat, which have decreased by 91%, 76% and99% respectively from 2005 levels.

● Reduced tariff rates for wheat, sardines and palm kernel crude oil, and some chemical fertilisers.

● Reduced other taxes levied on goods: a) lowered the excise tax (CIDE) on petrol and diesel;b) expanded the range of products which benefit from lower social security contributions (PIS/Cofins) to include a number of additional milk and wheat products; and c) eliminated themerchant marine levy (AFRMM) imposed on the freight using Brazilian ports for wheat andwheat flour between May and December 2008.

● The 2008/09 Agricultural and Livestock Plan included a number of measures such as higherguarantee minimum prices, increased access to credit and the expansion of extension servicesin order to stimulate farm production, support for food manufacturing and commercialisation,and a build up of public stock levels.

While predating the significant rise in food prices, the National Food Security and NutritionalSystem (SISAN) was approved in September 2006 with the purpose of assuring the human right toappropriate food, taking into account the environmental, social, regional, and economicdimensions. It establishes a definition of food security, and seeks to provide the over-archingframework for establishing, implementing and monitoring policies relating to food and nutritionalsecurity in all spheres of the government.

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Domestic agricultural policies

Price and income support policies

The traditional market price support instrument, Aquisição do Governo Federal (AGF),

consists of direct government purchases from producers and producer co-operatives at

announced prices, which generally vary between major regions. Twelve commodities are

covered, including staple crops (mostly rice, maize and wheat), non-food crops such as

cotton and jute, and a few processed products such as manioc flour. Minimum guaranteed

prices for the major commodities were held constant in 2005/06 and 2006/07 with the

exception of maize and rice for which minimum prices increased by 4% and 10%

respectively (Table 2.3). There were also increases for a few minor crops (carnauba wax and

jute). Almost 2.6 million tonnes of product were purchased through this programme in

2005/06, the highest level since 1996/97, although purchases fell back in 2006/07 (Table 2.4)

Minimum prices were increased in 2007/08 for beans, and for most of the non-major

commodities, by an average of 20%. They were increased again for the 2008/09 crop year,

including for all the major commodities with the exception of cotton.

The other historical government purchase instrument is Contrato Governamental de

Opção de Venda, a public sell option contract system which guarantees the holder (a

producer or an agricultural co-operative) a future sale at a fixed “execution” price. Before

the start of each season, the National Food Supply Agency (CONAB) announces the

products for which sell option contracts will be offered, the quantity and the fixed

“execution price” (at least the AGF minimum price). Options are purchased through

Box 2.1. Food price inflation in Brazil (cont.)

Figure 2.5. Brazil: Consumer price indices in 2006-08

Source: Brazilian Institute of Geography and Statistics (IBGE); Extended National Consumer Price Index (IPCA).statLink 2 http://dx.doi.org/10.1787/530134604626

95

100

105

110

115

120

Jan.

06

Feb.

06

Mar. 06

Apr. 06

May 06

June

06

July

06

Aug. 0

6

Sept. 0

6

Oct. 06

Nov. 0

6

Dec. 0

6

Jan.

07

Feb.

07

Mar. 07

Apr. 07

May 0

7

June

07

July

07

Aug. 0

7

Sept. 0

7

Oct. 07

Nov. 0

7

Dec. 0

7

Jan.

08

Fev.

08

Mar. 08

Apr. 08

May 0

8

June

08

July

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Aug. 0

8

Total CPI Food and drink

December 2005=100

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auction. CONAB is responsible for purchasing the product once the option holder decides

to execute the contract. Since its inception in 1996/97, public option contracts have been

issued on a regular basis for maize, and on an ad-hoc basis for wheat, rice, sorghum, cotton

and coffee. In 2005/06, the government suspended the use of public option contracts in

preference for the use of the recently introduced private sell option contracts. However,

this proved to be temporary, as it was reintroduced in 2006/07 for rice.

CONAB also makes direct acquisitions from family farms under the Programa de

Aquisição de Alimentos (PAA) which began in 2003/04. These purchases are made at market

prices, with the product either going into stock or distributed as part of a food

programme. Changes were made to expand and improve the operation of this

programme, including an increase in the acquisition cap limit from BRL 2 500 to 3 000

(USD 1 300 to 1 500) per farmer in August 2006. Acquisitions under this programme

increased from 2% of all government acquisitions in 2005/06 to 11% in 2006/07. Under the

milk production and consumption modality, the average daily distribution increased

from 0.65 to 0.78 million litres of milk between 2006 and 2007, with the number of

producers increasing from 19 000 to 29 000.

A new programme providing price support to family farms, the Programa de Garantia de

Preços para a Agricultura Familiar (PGPAF), was established in December 2006. It is closely

linked to PRONAF, covering many of the same crops and regional groupings. There are two

aspects to the programme. First, it ensures that farmers receive a guaranteed price (based

on the average regional production cost) for their product in the event of either a credit

transaction amortisation or liquidation. The objective is to reduce the risk of indebtedness

and capital impairment, thereby fostering an increase in production and income. Second,

it provides a bonus to farmers if the state average market price for a commodity falls 10%

below the guaranteed price. The cap limit for this bonus is BRL 3 500 (USD 1 800) per

beneficiary for each crop. During 2007, the only support provided was bonuses for cashew

nuts.

Another relatively new scheme is the Prêmio Equalizador Pago ao Produtor (PEPRO)

programme, introduced in 2005/06. It operates like a deficiency payment (classified under

payments based on output) by paying the seller, whether a producer or an agricultural

Table 2.3. Brazil: AGF minimum guarantee prices for main programme crops, 2005-09

1. South, Southeast and Centre West regions and south Bahia.2. The same minimum guarantee price applies in all regions in Brazil.3. South, Southeast, Centre West regions (except Mato Grosso), and south Bahia, Maranhao and Piaui.4. Type 1 (long, fine, husked) for the South, Southeast, Northeast and Centre West regions (except MT).5. The same minimum guarantee price applies in all regions in Brazil.6. Type 2, minimum ph 75, Brando, for the South region.

Source: MAPA, Agricultural and Livestock Plans, various years.statLink 2 http://dx.doi.org/10.1787/531883414557

Crop Weight2004/05 2005/06 2006/07 2007/08 2008/09

BRL USD BRL USD BRL USD BRL USD BRL USD

Beans1 60 kg 47.00 19.31 47.00 21.59 47.00 24.12 48.42 27.91 80.00 46.12

Cotton2 15 kg 44.60 18.32 44.60 20.49 44.60 22.89 44.60 25.71 44.60 25.71

Maize3 60 kg 13.50 5.55 14.00 6.43 14.00 7.19 14.00 8.07 16.50 9.51

Rice4 50 kg 20.00 8.22 22.00 10.11 22.00 11.29 22.00 12.68 25.80 14.87

Soybeans5 60 kg 14.00 5.75 14.00 6.43 14.00 7.19 14.00 8.07 22.80 9.51

Wheat6 Tonne 330.88 135.94 330.88 151.98 330.88 169.83 330.88 190.75 397.00 228.87An

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Table 2.4. Brazil: Expenditure and volume of product by output support instrument, 2005

Source: MAPA/SPA, 2008.statLink 2 http://dx.doi.org/10.1787/532047

Support instrument

2004/05 2005/06 2006/07

Value (BRL million)

Volume (1 000 MT)

Value (BRL million)

Volume (1 000 MT)

Value (BRL million)

Volum(1 000 M

AGF 504 1 690 613 2 581 132 373Beans 0 0 2 3 38 36Cotton 13 5 1 0 2 1Maize 127 637 452 2 224 53 273Manioc 0 0 0 0 0 0Rice 196 567 134 308 28 62Soybeans 0 0 10 15 0 0Wheat 168 481 13 32 0 0Sisal 0 0 0 0 11 1

Public option 169 352 0 0 437 858Beans 0 0 0 0 0 0Cotton 0 0 0 0 0 0Maize 0 0 0 0 0 0Manioc 0 0 0 0 0 0Rice 168 350 0 0 437 858Soybeans 0 0 0 0 0 0Wheat 1 2 0 0 0 0

PEPRO 0 0 558 6 028 1 200 8 563Beans 0 0 0 0 5 38Cotton 0 0 154 462 545 729Maize 0 0 4 100 171 3 753Manioc 0 0 0 0 0 0Rice 0 0 0 0 0 0Soybeans 0 0 401 5 468 290 3 743Wheat 0 0 0 0 0 0Coffee 0 0 0 0 190 300

PEP 362 2 150 689 9 144 103 1 428Beans 0 0 0 0 16 87Cotton 72 198 1 2 0 0Maize 60 760 226 3 248 71 1 183Manioc 0 0 0 0 0 0Rice 0 0 58 460 17 158Soybeans 0 0 360 5 195 0 0Wheat 230 1 192 44 240 0 0

PROP 178 944 322 3 956 139 1 611Beans 0 0 0 0 0 0Cotton 135 272 0 0 0 0Maize 7 114 192 2 238 0 0Manioc 2 76 5 189 0 0Rice 20 328 27 239 0 0Soybeans 0 0 98 1 290 139 1 611Wheat 16 153 0 0 0 0

TOTAL 1 215 5 135 2 182 21 713 2 013 12 833Beans 0 0 2 3 59 161Cotton 220 475 156 464 547 730Maize 194 1 511 874 7 810 295 5 209Manioc 2 76 5 189 0 0Rice 384 1 245 219 1 007 482 1 078Soybeans 0 0 869 11 968 429 5 354Wheat 415 1 828 57 272 0 0Coffee 0 0 0 0 190 300Sisal 0 0 0 0 11 1

% of productionBeans n.a. 0.1% 5.0%Cotton 12.9% 16.0% 18.9%Maize 4.3% 18.3% 10.1%Manioc 0.3% 0.7% n.aRice 9.4% 8.7% 9.7%Soybeans n.a. 22.8% 9.2%Wheat 39.2% 10.9% n.aCoffee n.a. n.a. 13.8%Sisal n.a. n.a. 0.0%

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co-operative, the difference between the guaranteed price and the price received at

auction. It has been primarily used to support soybean and maize producers, and is being

extended to support other products such as coffee beans.

The government operates two programmes which support purchasers of agricultural

commodities. Historically, the most important of these instruments is Prêmio para Escoamento

do Produto (PEP) which pays commercial buyers the difference between the minimum

guaranteed price and the price the buyer is willing to pay as determined by regional auctions

organised by CONAB. Since its introduction in 1996, PEP was traditionally used to support

cotton, maize and wheat; covered on average 0.8 million tonnes per annum over 1996-2002;

and was inactive in 2002/03. However, it was reactivated in 2003/04; expanded to cover beans,

rice and soybeans; and in 2005/06 supported 9.1 million tonnes of crops, predominantly

soybeans and maize. In 2006/07 there was a considerable drop in the volume of product

covered, almost all for maize. Prêmio de Risco para Aquisição de Produto Agrícola oriundo de

Contrato Privado de Opção de Venda (PROP), introduced in 2004/05 works in the same way as the

public sell option, except that private agents take the role of CONAB and the government

pays these agents a “risk premium” if the market price falls below the “execution” price.

The government has also taken steps to involve the private sector in the distribution

of its buffer stocks. The Valor de Escoamento Produto (VEP) programme pays a subsidy to a

defined consumer group (poultry raisers, cattle raisers, feed industries, pig raisers and

others) for purchasing government stock and transporting it to a specified consumption

region. An auction system is used to determine the subsidy value. During 2006, 386 000 tonnes

of maize were sold with a premium of BRL 8 million (USD 4 million). In 2007, this increased

to 700 000 tonnes of maize with BRL 83 million (USD 43 million) paid out.

Table 2.4 indicates the expenditure and volume of product associated with various

programmes, and shows the contrasting market conditions that existed in 2006 and 2007.

There was a significant increase in market price support for soybeans and maize in 2005/06,

with almost one-quarter of the soybean harvest directly involved in price support

programmes. While there was a reduction in the quantity of product purchased during

2006/07, the level of funding provided for the programmes remained over BRL 2 billion

(USD 1 billion). Maize and soybeans dominated in terms of volume, but cotton and rice were

the most important in terms of expenditure. Although there were no intervention activities

for wheat in 2006/07, action was taken to support coffee. Purchases made in 2006/07 have

some effect on the 2006 PSE estimates, but are mostly reflected in the 2007 calculations.

In order to reduce inflationary pressure, zero duties under the PIS/PASEP (Social

Integration Programme Tax) and COFINS (Social Security Contribution) were extended in

June 2007 to include skim milk powder, fermented milk, drinks with milk and milk

compounds, infant formula, certain cheese, and whey for human consumption. In

May 2008, wheat, wheat flour, common bread and mixes to make bread were also excluded

until December 2008.

Input subsidies

The provision of bank credit to agriculture in Brazil is dominated by the national ruralcredit system, Sistema Nacional do Crédito Rural (SNCR). The majority of lending to the sector

comes from non-bank sources such as domestic agribusiness and international lenders which

are typically unavailable for smaller agricultural producers without established links to

markets. The major source of funding for SNCR comes from compulsory resources, under

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which banks are forced to choose between either (a) holding 25% of their sight deposits as

obligatory reserves at the central bank at zero interest, or (b) lending to agricultural borrowers

at below market interest rates. Other important sources of funding are the rural savings of co-

operative banks, the national development bank BNDES and constitutional (state) funds. The

interest rate charged to the borrower varies from programme to programme, depending on the

source of the credit, the purpose of the borrowing, the income level of the borrower, etc.

The SNCR system provides directed credit at concessional interest rates under a range

of programmes that fall into three categories: i) marketing and storage credit; ii) working

capital; and iii) investment credit (classified respectively as payments based on output,

payments based on variable input use and payments based on fixed input use reflecting,

among other things, the purpose and term of the loans). These last two categories can be

further differentiated by two broad groups of beneficiary: a) medium and large-scale

producers and their co-operatives (referred to here as the general system) and b) small

agricultural producers – beneficiaries of PRONAF, agrarian reform settlers and family

farmers, who comply with certain criteria.

The level of credit provided through SNCR continued its upward trend through 2006

and 2007, rising to over BRL 50 billion or one-quarter of gross agricultural output (Table 2.5).

The largest increases were for working capital which accounted for 60% of SNCR credit in

2007, with investment taking a share of 21%, and marketing and storage 19%. The share of

SNCR credit that is distributed through PRONAF programmes has shown a steady upward

trend over the period. During the last two years market interest rates (SELIC) have fallen

from 19% to 12%. While concessional interest rates have also dropped, reducing farmers’

repayment requirements, the preferential margin provided by the system has decreased.

In addition to a large increase in the amount of credit available and a lowering of

concessional interest rates, a number of other adjustments were made to the programmes,

including the following:

● Allow the purchase of used harvesting and tractor machinery through MODERFROTA,

the largest of the investment credit lines operated by BNDES.

● The addition of a new BNDES credit line called PROLAPEC (Programa de Integração Lavoura-

Pecuária) in 2007/08 to fund investments in farming and livestock integration to reduce

Table 2.5. Brazil: Annual credit allocations in the SNCR, 2003-07BRL million

Source: MAPA.statLink 2 http://dx.doi.org/10.1787/532065278466

2003 2004 2005 2006 2007

Total SNCR credit 31 103 40 446 41 976 43 766 51 165

Marketing and storage 5 038 8 235 9 404 9 268 9 653

Working capital – General 16 596 19 694 19 672 20 351 24 175

Working capital – PRONAF 2 365 3 567 3 602 4 015 6 428

Investment – General 5 672 6 756 6 496 6 605 8 041

Investment – PRONAF 1 442 2 194 2 803 3 526 2 868

Selected interest rates

SELIC 23 16 19 15 12

Investment – General (average) 10 10 9 9 7

Investment – PRONAF (groups C and D) 4 4 4 4 3

PRONAF as share of in Total SNCR (%) 12 14 15 17 18

Total SNCR as share of GAO (%) 18 22 24 25 25

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environment degradation. This was merged in 2008/09 with the credit line provided

through MODERAGRO for soil erosion and conservation to form a new credit line

PRODUSA (Programa de Estímulo à Produção Agropecuária Sustentável), the Program for

Fostering Sustainable Farming specifically targeting degraded soils.

● Merged three BNDES credit lines (PRODEFRUTA, MODERAGRO and PRODEAGRO) into a

new programme MODERAGRO II in 2007/08 for the purpose of improving their

performance, and expanding the repayment term for this new programme from five to

eight years.

● Increased the credit limit available to individual producers for working capital,

investment and marketing credit financed from controlled resources.

● Increased the maximum income ceiling for producers to qualify for credit through the

PROGER RURAL programme.

A number of adjustments were made to the PRONAF programme for the purpose of

increasing its scope and efficiency. Most importantly, in the 2008/09 plan, the criteria

determining the eligibility of “family farms” was both rationalised (e.g. from three different

types down to one) and expanded (e.g. the maximum income level was increased), with the

inclusion of fisherman and people working in the extraction, forestry and aquaculture

industries. Two new special lines were added: (a) Renewable Energy and Environmental

Sustainability Investment in 2007/08 – to fund the introduction of renewable energy

generation technologies, environmental technologies such as effluent treatment, and soil

conservation; and (b) “More Food” in 2008/09 – to finance maize, beans, rice, manioc,

vegetables, fruits and milk products, with the aim to reach an additional 300 000 farmers

with BRL 6 billion (USD 3 billion) in credit.

Credit support is also provided to producers through debt rescheduling. Major debt

rescheduling occurred during the later 1990s and early 2000s for both commercial and

family producers (OECD, 2005). During 2006 and 2007 debt repayments were deferred in

response to the financial difficulties faced by producers as a result of climatic events, the

appreciation of the Real, pest and disease outbreaks and increased production costs. In

2006, the government announced the deferral of all investment credit instalments (capital

and interest) due in 2006 for a period of 12 months, and a further 12 month extension for

working capital credit that had already been granted a one year roll-over in 2005. Producers

whose main income comes from cotton, rice, maize, soybeans, sorghum or wheat and who

were considered credit worthy were eligible to apply for this deferral without the

requirement of formal credit analysis. In addition, soybean, cotton, rice and maize

producers who had taken out working capital credit for the 2005/06 season benefited from

a partial four year extension of their borrowings. The one year extensions granted in 2006

were rolled over for another year in 2007. Further, a new law in 2007 authorised the use of

the obligatory funds made available for agriculture from rural savings accounts and cash

deposits as a credit line to farmers who were unable to renegotiate working capital debt

owed to input vendors for the 2004/05 and 2005/06 crop seasons.

As a result of the on-going concern about the indebtedness of the sector, limiting the

capacity of producers to borrow, an extensive assessment of the rural debt situation was

conducted in 2008. It found that almost BRL 18 billion (USD 9 billion) of the sector’s total

debt balance of BRL 88 billion (USD 45 billion) was overdue, with just under 30% of

producers with debt in default for at least a proportion of their repayment. In order to deal

with the accumulating debt problem, a major debt settlement package was introduced at

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the end of 2008 involving reductions in default burdens, debt balances and interest rates;

extension of repayment terms; and discounts for payment (Box 2.2).

Because of the lack of private sector involvement, the government operates a range of

farm insurance schemes. The traditional General Agriculture Insurance Programme

(Programa de Garantia da Atividade Agropecuária – PROAGRO) has been dwarfed in recent

years by schemes specifically targeting “family” or commercial farmers. The most

significant of these is Seguro da Agricultura Familiar (SEAF), a sub-programme of PROAGRO.

Established in August 2004, it assists family farmers enrolled in PRONAF to borrow working

capital from commercial banks by guaranteeing full redemption of the liability in the event

of a 30% or more drop in gross revenue caused by drought, flood, hail, wind, disease or

plague. In 2007, the number of products covered by the programme increased from 5 to 20,

and in 2008, the maximum net earning compensation was increased to BRL 2 500

(USD 1 300). The number of farmers enrolled in the programme increased from 553 561 in

2004/05 to 601 854 in 2006/07, with the value of credit and net earnings covered rising from

BRL 2.4 billion to BRL 2.8 billion (USD 1.0 to 1.4 billion). While producers contribute to the

programme by paying a premium equivalent to 2% of the loan value, it is mostly funded

through ad hoc extra-budgetary allocations.

Box 2.2. The 2008 debt settlement package in Brazil

In recognition of the rising debt level of agricultural producers, including a growing levelof overdue debt and an increasing number of producers in default for at least a portion oftheir debt, a major debt resettlement package was announced in May 2008 and approvedas Federal Law No. 11.778 on 17 September. The package was drawn up jointly by theMinistry of Agriculture, Livestock and Supply (MAPA); the Ministry of AgrarianDevelopment (MDA); the Treasury; and the Ministry of National Integration.

The purpose of the package is to establish conditions so that farmers can settle theirfinancial indebtedness so as to improve the long-term financial viability of producers andenable them to regain access to credit. The pack offers favourable conditions for therepayment of overdue debt. Furthermore, in order to avoid the accumulation of newoverdue debt, the package also offers to reduce the financial burden of other debt that iscoming due. The conditions vary according to the characteristic of each credit programmefrom which debt has been sourced, the current debt status of the producer, and the timeframe over which the producer is willing to pay back the debt. Some of the provisionsinclude a:

● reduction in the additional levies charged on overdue debt;

● variable discount of up to 45% on the outstanding balance of both overdue and comingdue debt for early repayment;

● fixed value discount of up to BRL 15 000 (USD 8 600) on the outstanding balance of bothoverdue and coming due debt for early repayment;

● extended repayment terms for the remaining balance if a proportion of coming due debtis repaid; and a

● reduction in interest rates charged on investment and working capital debt.

Despite the generous provisions, only a limited number of producers have enrolled in thescheme so far. The original deadline for enrolment was extended to mid-December 2008,and it was very likely that the cut-off date will be extended into 2009.

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The crop guarantee programme (Programa Garantia Safra), which began in 2002/03, is

available to family farms enrolled in PRONAF who are located in arid areas and are

producing non-irrigated staple crops and cotton. Participating farmers, who each

contribute BRL 5.50 (USD 2.80) per annum, receive a payment of BRL 550 (USD 113) if they

suffer a loss of at least half of their anticipated output through natural calamity. The

number of farmers enrolled in the programme increased from 177 839 in 2004/05 to 346 327

in 2006/07, with the total value of payments to farmers through the programme increasing

from BRL 39.3 million to BRL 185.5 million (USD 16 million to USD 95 million).

The rural insurance premium programme (Subvenção ao Prêmio do Seguro Rural – SPSR)

grants a subsidy to commercial producers who establish contracts with insurance

companies listed by the government. Since it began in 2005, the value of support has risen

from BRL 2.3 million to BRL 61 million (USD 1 million to USD 31 million) in 2007. While

initially covering only eight crops, it was extended in 2006 to cover all agricultural and

livestock activities, as well as forestry and aquaculture. The share of the insurance

premium covered by the subsidy was increased for the original eight crops from between

30%-50% to between 40%-60%. The maximum subsidy per product was increased to

BRL 32 000 (USD 16 000), with the annual ceiling per producer increasing from BRL 26 000 to

BRL 192 000 (USD 13 000 to USD 98 000), i.e. producers are eligible to receive this subsidy for

more than one product. The area covered by the programme has increased from

68 000 hectares in 2005 to 2.3 million hectares in 2007, with soybeans accounting for 73% of

the area covered and 47% of the subsidy value in 2007.

In order to increase private sector involvement in the agricultural insurance market

(there are currently only four companies listed in the SPSR programme), the government

made a proposal to Congress in 2008 to replace the Rural Insurance Stability Fund with a

Catastrophe Fund. The objective of this new Fund is to protect private insurance

companies against financial losses due to catastrophic events, with the anticipation that

this will encourage growth in the private insurance market. The Fund will receive financial

support from MAPA, with guarantees backed by the National Treasury.

Environment

In addition to introducing lines of credit specifically designed to recover soils that

have been degraded, the new PROLAPEC and subsequent PRODUSA programmes also

include technical assistance to producers, training for technicians, field visits, creation of

demonstration units and sustainability modelling. While standards for the production,

classification, processing and packaging, importation, distribution, identification and

certification of organic products were first published in 1999, it was only in December 2007

that a Presidential Decree formally established them. There are approximately

1 200 certified organic farmers in Brazil, and commercial production, estimated to be

growing by 20% per year, is mostly in grains and vegetables.

As a result of a greater policy focus, including stronger enforcement of existing

regulations, annual rates of Amazon deforestation declined from over 27 000 km2 in 2004

to a low of less than 10 000 km2 in 2007. In December 2007, further laws were enacted to

prevent, monitor and control deforestation. Finally, after several years of development, the

Brazilian government launched the Sustainable Amazon Plan (Plano Amazônia Sustentável –

PAS) in May 2008. SAP includes a variety of initiatives including an extensive research

network to develop forest and aquatic products, mineral resources, biodiversity and

ecosystem services, and the Amazon Fund to receive donations from the international

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community to finance actions to prevent, monitor and fight against deforestation, and

advance the sustainable use of the Amazon forests.

Infrastructure

The Programme for Growth Acceleration (Programa de Aceleração do Crescimento – PAC)

was launched in January 2007 to foster private investment and improve public sector

investment in infrastructure. The goal of PAC is to see BRL 500 billion (USD 250 billion)

invested over the five-year period 2007-11, with 87% coming from state owned companies

and the private sector. The proposed transportation projects that are of importance to

agriculture include: the renewal, paving, maintenance and construction of highways

(especially in the centre-west): the construction of locks on hydroways (in Pará); the

expansion of the railway network (such as the 2 258 km extension to the North-South

railway); and dredging to increase the capacity of important ports (e.g. Rio Grande do Sul,

Paraná, Santa Catarina, São Paulo, Espírito Santo, Bahia and Maranhão). Under PAC an

additional BRL 3 billion of public funding will be spent on irrigation. Consequently,

irrigation expenditure increased from BRL 236 million (USD 108 million) in 2006 to

BRL 687 million (USD 350 million) in 2007. A total of BRL 12.7 billion (USD 6.5 billion) of

investment is foreseen under the Light for All Program, which has a goal to provide

electricity to an additional 5.2 million persons by 2011. PAC also foresees a total public/

private investment of BRL 17.4 billion (USD 9 billion) in biofuels, with 70% spent on

building ethanol plants, 25% on a multi-fuel pipeline between Goiás and São Paulo, and the

remaining 5% on biodiesel plants.

Biofuels

There has been a strong government focus in recent years on developing the biofuel

market. Other actions have included a substantial increase in BNDES lending to construct

purpose built ethanol plants and modernise sugar cane mills; excise tax incentives to

encourage the purchase of flexi-fuel vehicles; mandatory biofuel blending ratios for both

petrol and diesel; a public auction system to distribute biodiesel; trade agreements to

develop export markets; and the establishment of Petrobras Biocombustivel, a subsidiary

of Petrobras, to increase the government’s involvement in the market. Ethanol production

increased from 15 billion litres in 2004 to 22 billion litres in 2007, while biodesel production

(80% from soybeans), which only commenced in 2005, reached 402 million litres in 2007. To

accommodate the expansion in supply, the biofuel blending ratio for diesel, which only

became effective on 1 January 2008 at 2% (target of 5% by 2013), was increased to 3%

beginning 1 July 2008.

Biotechnology

As a result of recent regulatory changes, biotechnology products are once again being

approved for commercial use in Brazil. The National Technical Commission on

Biosafety (CTNBio), established in 1995, had up until the enactment of the Biosafety Law

in 25 March 2005 approved the commercial use of three biotech products: one each for

corn, cotton and soybeans. The Law expanded the membership of CTNBio from 18 to

27 persons and established a two-third majority requirement to approve a product for

commercial use. These changes created a major deadlock for the approval of biotech

products for commercial use as enough members were opposed to their introduction,

with a backlog of over 500 product requests, although approval for field testing continued

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to be given. After much debate, amendments were made in March 2007 to the Biosafety

Law requiring just a simple majority in CTNBio for approval of biotech products for

commercial release. In 2007 CTNBio approval for commercial use was given to three

biotech corn varieties (Liberty Link, MON 810 and Bt 11), all of which have been

subsequently approved by the National Biosafety Council (CNBS) in 2008. Although

approval was given by both bodies, there was not unanimous agreement among

government ministries and Ministers. It is estimated that biotech products will account

for 58%, 10% and 8% respectively of the 2008/09 soybean, corn and cotton crops. Surveys

show a much greater acceptance of biotech crops by farmers than among food processors,

retailers and consumer groups.

Land reform and territorial development

Progress continues to be made in achieving the objectives of PNRA II, whose targets

have been extended by subsequent PPAs. During 2007, 67 500 families were settled on

approximately 6.4 million hectares of land confiscated, purchased or reclaimed by the

government. Since PNRA II began in November 2003 almost 450 000 families have been

settled on 38 million hectares. Legal changes were made to increase the maximum area of

land for deed granting or use in rem from 100 to 1 500 hectares. The National Program for

Land Credit (Programa Nacional de Crédito Fundiário – PNCF) was consolidated, leading to an

increase in the number of families participating and the area of land purchased through

low-interest loans.

In February 2008, the government launched a major territorial development strategy,

Programa Territórios da Cidadania, with the principal objective of overcoming rural poverty by

generating work and income opportunities. The programme was developed and is

implemented by 19 national ministries and five federal banks, including BNDES, in

partnership with state and municipal governments, and civil society. Almost BRL 13 billion

(USD 6.6 billion) was made available in 2008, with 50% allocated to territories in the

Northwest region and 20% to those in the North region.

Agro-food trade policies

Import measures

The centrepiece of Brazil’s import policy is the common external tariff (CET) applied

by Mercosur. The simple average MFN applied tariff for agriculture (WTO definition) was

10.3% in 2007, compared with an overall average tariff of 12.2%. Applied tariffs are generally

well below WTO bound tariff levels: the simple average WTO bound tariff for agriculture is

35.5%. Brazil meets its two WTO tariff-quota obligations by applying MFN tariffs below the

scheduled in-tariff quota rates.

Brazil has a number of exceptions to the CET. In some cases, including fertiliser and

pesticides, zero rates are applied; in others, notably several dairy products and rice,

higher rates are levied (27% for milk powders, whey and cheese, and 18% for rice). In

March 2006, the MFN applied tariff on garlic increased from 14% to 35%. In

December 2007, the Mercosur Common Market Counsel authorised the extension of

exceptions until December 2010, although the maximum number of exemptions in the

case of Brazil must be reduced to 100 tariff lines by January 2009 and further to 50 tariff

lines by August 2010.

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In order to reduce inflationary pressures on the domestic market, three temporarytariff reductions have been established: sardines – 2% tariff for 80 000 tonnes between

16 April 2008 and 15 April 2009; wheat – 0% for 2 million tonnes registered by 31 July 2008

and imported by 31 August 2008; and palm kernel crude oil – 2% for 72 500 tonnes between

1 August 2008 and 31 July 2009.

Brazil did not reserve the right to apply the special safeguards (SSG) for agriculture set

out in the Uruguay Round Agreement on Agriculture (URAA), although it can and does

impose standard trade remedies. No new antidumping or safeguard actions were taken on

agricultural products during 2006 and 2007. Of the 12 in force in 2005, the measures

imposed on milk powder from Argentina and Uruguay and canned peaches from Greece

have been removed, although in the latter case there has been a substantial increase in the

MFN applied tariff (from 14% to 55%). The antidumping measure imposed on Chinese

gliphosate was reduced from 25.8% to 2.9%, while that imposed on Chinese garlic increased

from USD 0.48 kg to USD 0.52 kg.

Export measures

While Brazil is one of 26 WTO countries that have reserved the right to subsidise

agricultural exports under the URAA, it has not used this right since the signing of the

URAA in 1995. However, agricultural exports do benefit from two general, economy-wide,

export measures: duty drawback and export finance. Unfortunately, there is only a limited

amount of information indicating the benefit provided to agricultural exports through

these general measures.

The duty drawback system, established in 1966, reduces the various taxes paid on

imports that are subsequently used in, or as capital good for, the production of exports.

Since its inception, duty drawback has been claimed on 10%-15% of imports. Moves were

made during the period to streamline the electronic administration of the system.

Brazil has three main export financing measures: BNDES ExIm; Programa de

Financiamento a Exportação (PROEX); and the Fundo de Garantia a Exportação (FGE).

Disbursements under BNDES ExIm, the largest of these programmes, fell by one-third

between 2006 and 2007, from USD 6.4 billion to USD 4.2 billion (after increasing from

USD 5.9 billion in 2005). Disbursements to farming exports represent just a small fraction

of this total, USD 13 million in 2006 and USD 19 million in 2007, 0.2% and 0.4% respectively.

In July 2007, BNDES reclassified the products able to be funded through this export credit

programme, increasing the range of eligible agricultural products. Interest rate subsidies

provided through the PROEX Equalisation modality also fell between 2006 and 2007, from

BRL 449 million to BRL 383 million (USD 200 million to USD 197 million), a drop of 15%

(BRL 609 million (USD 250 million) in 2005). Between 1991 and 2005, approximately 18% of

support provided through this modality went to agricultural products.

In addition to these programmes, the federal government allocated BRL 1.8 billion

(USD 0.8 billion) to states in 2006 for the purpose of export promotion, with a further

BRL 0.98 billion (USD 0.5 billion) in 2007. Two new export financing programmes were

created in 2003, Proger Exportação and FAT Exportar. The former focuses on micro and small

Brazilian companies (annual revenues of less than BRL 5 million) while the later is open to

all firms but in this case the exported product must have a local content greater than 60%.

Between 2005 and 2006 Proger Exportação and FAT Exportar disbursed BRL 15.2 million

(USD 7.8 million) and BRL 4.9 billion (USD 2.5 billion) respectively.

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In December 2006, the export tax of 9% applied to hides and skins was established for

an indefinite term, reversing an earlier decision (December 2005) to progressively remove

the export tax by January 2008. A comprehensive programme to revitalise the shoe, leather

products, timber processing, ornamental stones, furniture, textile and clothing industries

was launched in June 2007. Measures include new lines of credit, export support, tariff

increases for final products (textile, clothing and shoes), and tariff decreases for inputs

(caprine and ovine skins).

Trade agreements

Brazil continues to pursue a range of bilateral and regional trade agreements, and, less

formally, to promote South-South dialogue on trade policy issues. At the Mercosur level,

agreement on the inclusion of Venezuela as a full member was reached in 2006, with

accession occurring in 2008. During 2005-07, Mercosur was active in 26 different

negotiations with other countries. Among the most important was the first Mercosur Free

Trade Extra-Regional Treaty which was signed with Israel in December 2007, with tariff

reductions taking place either immediately or over four, eight and ten year periods.

Improvements were made to the agreements with Chile and Bolivia which will achieve

Mercosur preference rates for all products by 2011 or 2014, depending on the product.

Special agreements for the establishment of Free Trade Areas were signed with Pakistan in

2006 and with Jordan and Turkey in 2008. Progress was made in the Mercosur-SACU

(Southern African Customs Union) preferential trade agreement (conclusion was reached

on the market access component) and with the Mercosur-ASEAN (Association of South

East Asian Nations) agreement, but there was no substantial advancement in the

Mercosur-EU negotiations.

As the world largest exporter of ethanol, Brazil has placed great emphasis on

developing trade opportunities for biofuels. In December 2006, a special working group for

biofuels was established within Mercosur. In March 2007, a Memorandum of

Understanding (MOU) was signed with the United States to foster private investment in the

sector and set forth uniform standards and norms within the global market. In the same

month, the major producing and/or consuming countries of biofuels (Brazil, China, EU,

India, South Africa and the United States) launched the Biofuel International Forum (FIB) to

foster the international market for biofuels, for example by co-ordinating initiatives for

product technical standardisation. MOUs were also reached with South Africa, India,

Mozambique, Chile, Panama, Mexico, Sweden, Denmark, the Economic and Monetary

Union of West Africa, and the Netherlands.

Dispute settlement

Brazil is an active participant in the WTO dispute settlement process. During 2006

and 2007, Brazil sought action on two agricultural issues, both against the United

States. In August 2006, Brazil formally expressed dissatisfaction with the extent of US

policy changes in response to the March 2005 WTO Dispute Settlement Body instruction

to bring upland cotton subsidy measures into compliance with WTO obligations, and

requested the establishment of an Article 21.5 Compliance Panel. In December 2007,

the Compliance Panel found that the US actions were inconsistent with most, but not

all, of its obligations. Both the US and Brazil appealed this decision. In June 2008, the

Appellate report upheld the Panel’s findings that the US measures were still

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inconsistent with its WTO obligations, opening the way for sanctions to be imposed on

the US.

In 2007, Brazil initiated another complaint against the US, this time arguing that it had

exceeded its domestic support commitment ceiling levels during 1999 to 2002 and from

2004 to 2005, and that export credit guarantees are made available on terms more

favourable than those which are otherwise available in the market. After a period of

consultation, a Panel was established in December 2007 at Brazil’s request.

Bibliography

GAIN-BR8603 (2008), Brazil Temporarily Lowers Wheat Import Tariff, USDA FAS, February 8.

GAIN-BR8620 (2008), Annual Agricultural Biotechnology Report, USDA FAS, July 8.

IBGE [Instituto Brasileiro de Geografia e Estatística] (2007), Census of Agriculture 2006, www.ibge.gov.br/english/estatistica/economia/agropecuaria/censoagro/2006/default.shtm.

MAPA [Ministry of Agriculture, Livestock and Food Supply] (2006), Agricultural and Livestock Plan 2006/07:Overcoming Rural Challenges.

MAPA (2007), Agricultural and Livestock Plan 2007/08.

MAPA (2008), Brazil Agricultural Policies.

Marques, Vicente Azevedo (2008), “Report on Main Policy Developments in Brazil”, Report submitted toOECD.

OECD (2005), OECD Review of Agricultural Policies: Brazil, OECD, Paris.

WTO (2008a), WTO Secretariat Summary of Dispute DS267: United States – Subsidies on UplandCotton, www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm.

WTO (2008b), WTO Secretariat Summary of Dispute DS365: United States – Domestic Support andExport Credit Guarantees for Agricultural Products, www.wto.org/english/tratop_e/dispu_e/cases_e/ds365_e.htm.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 3

Chile


● Chile has a relatively open trade policy with support historically concentrated on a few commodities. T

country operates a price band system (PBS) for wheat, wheat flour and sugar, but with high world prices a

reforms to the PBS necessary in order to comply with WTO obligations, the economic significance of the P

has diminished. Across the sector, price support has continued to decline and farm prices are now alm

exclusively market determined.

● Payments to farmers and spending on services to support agriculture more generally have continued

increase. The former category comprises mostly payments for on-farm irrigation, productivity and sk

development programmes, and support for the recovery of degraded soils, while most of the latter consists

spending on infrastructure, research and development and inspection services.

● As a result of these developments, the PSE has been more or less constant, averaging 4% of gross fa

receipts in 2005-07, while the GSSE has increased steadily and now accounts for more than one-third of

support to the sector. Total support to the agricultural sector imposes a smaller burden on the economy th

in most OECD countries, accounting for 0.31% of GDP between 2005 and 2007, compared with an OE

average of 0.97%.

● Agricultural policies have not been modified in response to high world prices. Social policies, on the ot

hand, have been used to make a one-off payment of USD 35 to people enrolled in social programmes and w

belong to the poorest 40% of households. From the standpoint of producers, the benefits of high prices ha

been partially offset by high energy costs and the appreciation of the Chilean peso. The government h

sought to restrain the appreciation of the peso by purchasing US dollars. However, because of the financ

crisis, only USD 5 750 million of a planned purchase of USD 8 000 million have been bought.

● Overall, Chile has ensured that its agricultural policies remain well targeted on its principal objectives

improving sectoral competitiveness and facilitating smallholder development, and has avoided the use

distorting policies in pursuit of these objectives.

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Developments in Chilean agricultural policy reflect the government’s commitment to

open markets: Chile’s agricultural trade policy is essentially liberal, observed in the low

levels of market price support. The Chilean government has been increasingly active in

adopting policies to boost competitiveness, help poorer and less competitive farmers, and

protect the country’s environment and natural resource base, through the provision of

public goods and highly targeted policies. The Chilean response to rising food prices has

focused on reducing demand (by raising interest rates) and a one-off cash subsidy to the

poorest segment of the population.

● Support to producers as measured by the %PSE hasdeclined from 8% in 1995-97 to 4% in 2005-07. Since1995, the level of support has been considerably lowerthan the OECD average of 26% in 2005-07, andtypically less than 10%.

● Support based on commodity output is deliveredentirely in the form of market price support (MPS)since there are no output payments. The share of MPSin the PSE has decreased from 86% in 1995-97 to 30%in 2005-07. However, over the same period, supportbased on variable input use, has increased from 4% ofthe PSE to 14%.

● Prices received by farmers were on average only 1%above those observed on the world market in 2005-07,as shown by the producer nominal protectioncoefficient (NPC). In contrast, prices received byChilean farmers were on average 7% higher in 1995-97.

● The share of single commodity transfers (SCT) in thePSE was 29% in 2005-07. The highest %SCTs were forsugar and wheat, with shares of 15% and 6%respectively.

● The cost to consumers (%CSE) has halved from animplicit tax of 8% in 1995-97 to an implicit tax of 3% in2005-07.

● Support for general services to agriculture (GSSE)comprise an increasing proportion of the totalsupport estimate (TSE), rising from 16.5% in 1995-97to 37% in 2005-07.

● TSE as a burden to society has decreased over timefrom 0.64% of GDP in 1995-97 to 0.31% in 2005-07,about a quarter of the average in OECD countries(0.97%).


Figure 3.1. Chile: PSE level and composition over time


Figure 3.2. Chile: Producer SCT by commodity, 2005-07

Note: There are no payments based on output.statLink 2 http://dx.doi.org/10.1787/530252723

0.0

0.1

0.2

0.3

0.4

0.5

0.6MPS and budgetary support, billion USD

1

1% PS

Support based on commodity output (left scale)Budgetary transfers (left scale)

% Producer Support Estimate (right scale)

1995

1996

1997

1998

1999

2000

2001

2002 20

0320

0420

0520

0620

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0 5 10 15 20 25 3


AppleGrapes

TomatoesPigmeatPoultry

MilkMaize

Beef and vealWheatSugar


Other SCT

SCT as % of PSE

% of commodity gross farm receip

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0844252

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0863

0863863

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Table 3.1. Chile: Estimates of support to agricultureCLP million

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for Chile are: wheat, maize, apples, grapes, sugar, tomatoes, milk, beef and veal, pigmeat and poultrySource: OECD, PSE/CSE Database, 2008.


1995-97 2005-07 2005 2006 20

Total value of production (at farm gate) 2 098 835 3 597 365 3 527 278 3 549 379 3 715of which share of MPS commodities (%) 65 66 62 65

Total value of consumption (at farm gate) 2 081 205 3 800 322 3 710 845 3 719 737 3 970Producer Support Estimate (PSE) 165 799 161 788 179 243 157 112 149

Support based on commodity output 135 731 48 158 82 003 43 170 19Market Price Support 135 731 48 158 82 003 43 170 19Payments based on output 0 0 0 0



with input constraints 0 0 0 0Based on on-farm services 9 389 30 343 23 254 29 985 37

with input constraints 0 0 0 0Payments based on current A/An/R/I,1 production required 4 158 2 373 1 436 3 819 1

Based on receipts/income 0 0 0 0Based on area planted/Animal numbers 0 2 314 1 436 3 643 1

with input constraints 0 2 314 1 436 3 643 1Payments based on non-current A/An/R/I, production required 0 0 0 0Payments based on non-current A/An/R/I, production not required 0 0 0 0



Miscellaneous payments 0 0 0 0Percentage PSE 8 4 5 4Producer NPC 1.07 1.01 1.02 1.01Producer NAC 1.08 1.05 1.05 1.04General Services Support Estimate (GSSE) 32 672 77 806 68 643 75 938 88

Research and development 8 723 17 733 15 164 17 396 20Agricultural schools 362 749 771 654Inspection services 400 9 003 7 126 8 588 11Infrastructure 20 888 42 644 38 105 41 523 48Marketing and promotion 2 078 7 240 7 015 7 226 7Public stockholding 0 0 0 0Miscellaneous 220 437 461 552

GSSE as a share of TSE (%) 16.5 32.5 27.7 32.6Consumer Support Estimate (CSE) –165 715 –97 175 –176 895 –69 457 –45

Transfers to producers from consumers –136 817 –48 019 –82 003 –43 170 –18Other transfers from consumers –30 565 –50 129 –94 892 –28 866 –26Transfers to consumers from taxpayers 0 0 0 0Excess feed cost 1 667 974 0 2 579

Percentage CSE –8 –3 –5 –2Consumer NPC 1.09 1.03 1.05 1.02Consumer NAC 1.09 1.03 1.05 1.02Total Support Estimate (TSE) 198 471 239 593 247 886 233 050 237

Transfers from consumers 167 382 98 148 176 895 72 036 45Transfers from taxpayers 61 654 191 574 165 883 189 881 218Budget revenues –30 565 –50 129 –94 892 –28 866 –26

Percentage TSE (expressed as share of GDP) 0.63 0.31 0.37 0.30GDP deflator 1995-97 = 100 100 166 150 169

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Policy context: Chile’s agriculture at a glance

Over the last ten years, the contribution of the agricultural sector to GDP has been

constant at around 4%. The contribution of the sector to employment has decreased, from

19% in 1990 to 12% in 2007, but remains high relative to the sector’s share of value added,

suggesting low labour productivity in the agricultural sector. With regard to agricultural

output, the livestock sector has grown more rapidly than the crop sector, as new export

sectors such as pork and poultry have been developed. Agro-food exports have grown much

more rapidly than agro-food imports, with a net surplus exceeding 7.8 USD billion in 2007.

Figure 3.3. Chile: Evolution and annuachanges of agricultural output, 1995-20


Figure 3.4. Chile: Agro-food trade, 1995-2007


Table 3.2. Chile: Basic economic and agricultural indicators, 2005-07

n.a.: not available.1. Includes agricultural land, forestry land, native forest and thicketland, idle land, sterile and non-usable soils. If only productive land isconsidered the average size would be 19.4 hectares.


Source: Central Bank of Chile, 2008; FAO, FAOSTAT database, 2008; IMF,International Financial Statistics, 2008; INE, 2008; ODEPA, 2008; UN, UNComtrade database, 2008; World Bank, World Development Indicators, 2008.

2005 2006 2007

Basic economic indicators

GDP (USD billions) 116 146 164

GDP growth (%) 6.3 4.3 5.1

GDP per capita, PPP (USD) 12 173 12 997 13 885

Inflation (annual average, %) 3.1 3.4 4.4

Exchange rate (annual average, local currency per USD) 559.8 530.3 522.5

Population (million) 16 16 17

Population in rural areas (%) 13.2 13.2 13.1

Share in GDP (%)

Agriculture 3.8 3.9 3.8

Industry 39.6 44.5 44.5

Services 56.6 51.6 51.7

Share in employment (%)


Industry 23.3 23.7 23.8

Services 63.4 63.7 64.2

Average share of income spent on food (%) n.a. n.a. 22.1

Basic agricultural indicators

Agro-food exports (% of total exports) 20.0 15.9 12.0

Agro-food imports (% of total imports) 6.7 7.2 7.0

Agro-food trade balance (USD million) 5 728 6 359 7 840

GAO (% change from previous year) 5.5 –1.4 –0.1

Total cereal production (million tonnes) 3.9 3.5 3.0

Total meat production (million tonnes) 1.2 1.3 1.4

Natural resources and farm structure

Average farm size1 (ha) n.a. n.a. 121.0

Agricultural land1 (million ha) n.a. n.a. 36.4

Arable land per capita (ha) n.a. n.a. 0.2

Land sown to crops (million ha) n.a. n.a. 2.7

-60-40-20

020406080

100120140160

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1111

1995 = 100 Annual rate of growth,

Total GAO annual rate of growth (right scale)Total GAO (left scale)Crops (left scale)Livestock (left scale)

0

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12

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USD billion

Agro-food export (including fish and fish products)Agro-food import (including fish and fish products)

Agro-food balance (including fish and fish products

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Policy developments

Main policy objectives and instrumentsSince the restoration of democracy in 1990, agricultural policy has centred around

three main groups of objectives: first, the inherited goal of increasing competitiveness;

second, achieving more balanced agricultural development by better integrating poorer

less competitive farmers into commercial supply chains; and finally, reconciling these

objectives with goals relating to the conservation of the environment and the sustainable

use of resources. While the specific articulation of objectives has changed from one

government to the next, these broad areas have provided a common focus of policy

concerns. There has been some overlap, in that programmes targeted towards poorer

farmers have focused mainly on improving their competitiveness, while smallholders are

seen to have an important role to play in the pursuit of environmental objectives. There

has also been a subtle evolution in the emphasis given to these concerns.

In 2006, when Michelle Bachelet was elected president, her government further

rearticulated the country’s agricultural policy objectives, with stated aims of

1) transforming Chile into an international agro-food and forestry power; 2) promote a

more inclusive development for the support small-scale family agriculture (AFC);

3) modernising public agricultural institutions; 4) generating new sources of energy; and

5) ensuring a sustainable use of natural resources and protecting biodiversity. These

objectives are broadly similar and compatible with those that were inherited, although the

specific emphasis on generating new sources of energy is new.

In general, Chile domestic policy choices have been conditioned by its open trade

policy. Thus there has been relatively limited use of trade distorting policies. Market price

support has declined over the last 13 years and it is only provided through the use of a

uniform MFN tariff of 6% (although preferential access as a consequence of FTAs result in

an average effective tariff of less than 2%); and through the use of a price band system (PBS)

for wheat and sugar. The PBS has been modified several times since the WTO ruled against

it in 2001, and is currently in the process of further reform. The main source of support

arises from budgetary allocation, whether through input subsidies or through the

provision of public goods or general services.

Government expenditures on agriculture have more than quadrupled in real terms

over the past ten years, aided by strong copper revenues from the largest copper company,

which is state owned. About half of that spending is on public goods, while the other half

consists of measures which aim to make Chile’s poorer farmers commercially competitive.

The spending on public goods includes essential investments such as infrastructure in

irrigation, animal and plant health, inspection services, etc., that help raise agricultural

competitiveness and protect the country’s environment and natural resource base.

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Box 3.1. Food price inflation in Chile

Food prices in Chile increased by 18.2% between March 2007 and March 2008, while the CPI rose by8.3% over the same period. Within the food basket the products that exhibited the greatest priceincreases were fruits and vegetables (40%); followed by oils, butter, and fat (39%); bread andcereals (33%); eggs and dairy products (28%); and meats and deli-products (11%). In addition to theimpact of higher world prices, the winter of 2007 saw parts of central Chile suffer from severe frostand adverse weather conditions. This reduced yields for vegetables, pulses and some fruits, raisingtheir prices more or less until the end of 2007.

Even though Chile is a net exporter of agricultural products, high international food prices had alarge effect on domestic markets. This reflects the structure of Chile’s trade, where exportscomprise predominantly fruits and value added products such as wine and more recently dairyproducts and some types of meat; while imports are characterised by products such as wheat, flourwheat, maize and rice, and some types of meat and oils.

At the macro level, the Central Bank of Chile has increased interest rates to restrain demand andinflation. At the same time, in order to stop the significant appreciation of the Chilean peso withrespect to the US dollar, the Central Bank decided to buy USD 8 000 million by the end of 2008. However,given the global financial crisis that developed during the second half of 2008, the Central Banksuspended the measure at the end of September 2008, and only USD 5 750 million were bought (70% ofwhat was initially planned).

Other measures implemented to alleviate the food price rise are: the implementation of a one-offbonus of CLP 20 000 (USD 35) to people registered in social aid programmes and belong to the poorest40% of population. This payment aims to help families meet the problem of high prices for food,energy and fuel. Lastly, the Ministry of Agriculture (MINAGRI) through its Office of AgriculturalPolicies and Studies (ODEPA), weekly disseminates price information on fruits, vegetables and meatsin strategic areas and markets of the capital city (Santiago), in order to avoid speculation.

While producers of importable products benefited from higher international prices, these gains werepartly offset by high prices for fuel and fertilisers, the appreciation of the Chilean peso against theUS dollar (until about September 2008), and rising labour costs (in dollar terms). In the case ofexportable products, there was little increase in prices and farmers terms of trade actually deteriorated.

Figure 3.5. Chile’s monthly wholesale prices of wheat and maize compared with world market prices, 2006-08

USD/tonne

Note: Wheat Hard Red Winter No. 2, FOB Golfo, USA; Maize Yellow No. 2, FOB Golfo, USA. Domestic prices refer towholesale prices.

Source: ODEPA, Ministry of Agriculture, 2008; INE, 2008.statLink 2 http://dx.doi.org/10.1787/530378672185

0

100

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The government’s ambitious agenda for agricultural development has led to a wide

range of initiatives that involve budgetary expenditures. Budgetary transfers associated

with agricultural policies have more than quadrupled in real terms since 1995, from

CLP 33 000 million (USD 83 million) to CLP 218 000 million (USD 418 million) in 2007.

Figure 3.7 shows the composition of agricultural spending by programme area in 2007. It is

important to note that many of the policy instruments are designed to support small-scale

agriculture (family agriculture and/or poor farmers), with these instruments accounting for

around 45% of total expenditures. INDAP, the Ministry of Agriculture’s (MINAGRI) agency

that deals exclusively with smallholders1, accounts for more than 30% of the total budget

allocated to the sector.

Three areas account for almost 60% of total budget allocation: irrigation programmes

that provide subsidies for on-farm improvements and makes off-farm investments;

productivity and skills development programmes which comprise on-farm productive

investment; and rural development programmes which are limited exclusively to special

poor areas and consists of a series of subsidies for productivity improvements, given

through territorial development programmes and via land purchases for indigenous

people.

The programmes that comprise the remaining 40% are: the soil recovery programme;

R&D, extension and training; animal and plant health, and standards programmes which

include both on and off-farm measures and services; and lastly, marketing and promotion

programmes.

Box 3.1. Food price inflation in Chile (cont.)

Figure 3.6. Chile’s CPI compared with oil prices and exchange rateJune 2006 = 100

Source: Central Bank of Chile, 2008.statLink 2 http://dx.doi.org/10.1787/530400011026

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CPI Exchange rate Oil price

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Price and income support policy

Price support is provided exclusively through trade protection. Chile has a very open

trade policy, with a uniform MFN tariff of 6%. Moreover, the conclusion of a wide range of

preferential trade agreements provides exporters to Chile the benefit of tariff free access

for the majority of tariff lines. In the case of agricultural products, this has led to an average

applied tariff of less than 2% – a rate that is slightly lower than the average for

manufactured goods.

Chile’s MFN tariff of 6% provides an upper bound on the protection provided to

producers for all products, except those covered by the price band system (PBS) and those

for which contingency measures have been applied. The PBS was introduced in 1983 and

originally applied to wheat and wheat flour, edible vegetable oils and sugar. The

mechanism was discontinued for vegetable oils in 2001. Chile’s PBS for wheat, wheat flour

and sugar has undergone reform and now has little impact on the prices of these

commodities.

Chile provides few direct income payments to farmers, and only one programme was

functioning in 2007: the Subsidy for Auto-Consumption Agriculture implemented by the

Social and Solidarity Investment Fund (FOSIS), an institution within the Ministry of Planning

and Co-operation (MIDEPLAN). The Fund finances, in whole or in part, development

programmes, projects and special activities that contribute to poverty reduction. Through

this subsidy, FOSIS provides direct payments to poor small-scale farmers with the purpose of

increasing their production for their own consumption. The programme started in 2006 with

an initial budget of CLP 1 200 million (USD 2.2 million) and by 2007 the programme had

increased its budget to CLP 2 398 million (USD 4.5 million). Other programmes that are under

Figure 3.7. Chile: Shares of agricultural transfers by programme area, 2007

Source: OECD calculations based on data from DIPRES, 2008; MINAGRI, 2008.statLink 2 http://dx.doi.org/10.1787/530427807261

Irrigation subsidies and spending22%

Productivity and skills development programmes18%

Rural development programmes16%

Soil recovery programme12%

Animal and plant health,standards

12%

R and D, training, extension10%

Marketing and promotion3%

Credit subsidies3%

Others4%

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the umbrella of social policies can reach poor farmers, such as Chile Solidario (also under

MIDEPLAN), which provides several forms of support including monthly income payments to

the needy population regardless their economic activity.

Input subsidies

Irrigation programmes have been, and still are, among the most important of

Chile’s agricultural policies, accounting for an average of 30% of transfers to the sector

since 1990. While over the past ten years irrigation expenditures have averaged about

CLP 40 000 million (USD 68 million) per year, in 2007 they reached CLP 48 000 million

(USD 91 million). These expenditures have both on-farm and off-farm components. In

the first case, farmers receive subsidies to install or improve existing irrigation systems.

These payments account for 40% of the irrigation budget and are provided mainly by the

Ministry of Agriculture through a specialised agency, National Irrigation Commission (CNR).

In the case of off-farm investments, expenditures are designed to benefit an entire

community, region or area. This accounts for 60% of the irrigation budget and is

implemented by the Ministry of Public Works (MOP). Lastly, irrigation programmes need

to be understood in the context of the country’s water management policies, as

irrigation accounts for about 85% of national water use, a share that varies significantly

by region.

Programmes that aim to improve farm productivity have become more important in

recent years. In 2007, around 73% of these subsidies were provided by INDAP, whose

constituency is limited to smallholders (family agriculture). Of INDAP’s share, 60% is for

investments to capitalise and modernise the agricultural sector. The remaining 40% is

given with the goal of improving the productive, managerial and entrepreneurial

capabilities of small-scale farmers, thereby assisting their integration into national and

international markets. These two subsidies totalled CLP 30 000 million (USD 57 million) in

2007. The other 27% of the budget allocated to these programmes is executed by the

Economic Development Agency (CORFO), which provides subsidies for improving

productivity to all scale of farmers.

The Soil recovery programme continues to be one of Chile’s most important

agricultural policies. INDAP and the Agriculture and Livestock Service (SAG) are the two

agencies in charge of the programme, with INDAP support limited to small-scale

producers. In 2007, INDAP allocated 61% of the total subsidies equivalent to

CLP 15 000 million (USD 29 million), the remaining 39% was managed by SAG. The

programme comprises a set of subsidies used to finance activities to recover and/or

improve degraded soils. Some of the activities are: phosphate fertiliser applications to

restore the natural level of soil fertility; calcium fertiliser applications; the establishment

and regeneration of grassland; soil conservation; soil rehabilitation and crop rotation. The

ultimate aim of the programme is to raise the competitiveness of farming by improving soil

conditions of the farm.

The importance of INDAP as a credit provider agency for small-scale agriculture has

increased steadily since 1990; with its credit allocations increasing from CLP 6 860 million

in 1990 (USD 22 million) to CLP 33 000 million in 2007 (USD 63 million). Although INDAP is

the state’s main agricultural credit institution, its share of the national agricultural loan

portfolio is small and has declined to under 3% in recent years. In 2007, 59 446 farmers

received direct credit from this agency.

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INDAP has two instruments which aim to increase credit allocations to smallholders

from the private financial sector. One is the financial co-ordination subsidy (BAF), which

was created in 1996. This subsidy covers the transaction cost involved in a loan operation

and is given to financial entities that channel credit to smallholders. The other is the fund

of delegated cash management (FAD), which was created in 2004 and compensates banks

for the risk of operating with small farmers. This subsidy is determined through an auction

system; whereby banks compete for the interest rate they have to pay to INDAP in order to

receive the funds that later will be lent to smallholders. In 2007, through the two

instruments, a total of CLP 46 500 million (USD 89 million) in credit (almost 50% more than

the value of direct credit given by INDAP in the same year) was lent to 44 485 smallholders.

One interesting characteristic of FAD is that it has a mechanism of default risk coverage;

meaning that INDAP deals with any risk from transactions that were previously assumed

by banks. With the implementation of this fund, INDAP became a second-tier-bank, by

providing credit indirectly to farmers.

The agricultural insurance programme (COMSA) was created in 2000. Under this

programme, a subsidy is given to farmers who take out crop insurance and pay a

corresponding premium. The subsidy can pay up to 85% of the premium in case of small-

scale farmers, and 50% for medium and large-scale farmers. Private financial institutions

offer the agricultural insurance. Risks covered are those caused by climate hazards such as

drought, excess or untimely rain, frost, hail, snow, and wind; while the products eligible for

the subsidy are cereals, industrial crops, vegetables and legumes. The COMSA subsidy

annually has averaged approximately CLP 1 000 million (USD 2 million).

The importance of rural development programmes has increased over time. These

programmes were designed to improve the economic conditions of poor (subsistence)

farmers through the enhancement of their agriculture activities. INDAP and the National

Corporation for Indigenous Development (CONADI) have implemented programmes that

promote the development of indigenous farmers. In general these programmes equate rural

development with agricultural development in poorer areas. In 2007, the combined resources

from INDAP and CONADI accounted for 16% of budgetary transfers to agriculture, totalling

CLP 34 000 million (USD 65 million). Just over 70% of this allocation is managed by CONADI.

One particular function of CONADI is to purchase land which is given to indigenous people

for the purpose of undertaking agricultural activities, and to acquire wells and waters rights.

There are two ways in which land can be acquired: directly by individuals or communities

with the aid of subsidies; or through the direct purchases of land by the State, which is then

given to indigenous people who do not possess land or possess only limited land.

General services

SAG is the institution responsible for plant and animal health and inspection services.

Export certification and inspection activities have played a crucial role in the development of

Chile’s agricultural exports over the past two decades. Most of the programmes and activities

implemented by SAG are provided to the sector as a whole, although there are some on-farm

services, such as pest and disease controls and subsidies for the improvements of sanitary

conditions. In 2007, a budget of CLP 26 000 million (USD 50 million) was allocated by SAG to on

and off-farm activities, excluding the soil recovery programme.

Agricultural infrastructure is mainly in the form of irrigation works and rural roads,

and is under the responsibility of MOP. The Wheat Marketing Enterprise (COTRISA) is the

only stockholding infrastructure owned and operated by the State (MINAGRI). Chile has

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notified COTRISA as a state trading enterprise. COTRISA purchases wheat from Chilean

producers on a non-discriminatory basis and does not usually engage in import or export

transactions. Its effects on policy have come through implementing the PBS, rather than its

existence as an STE per se. However, since the reforms to the price band system, its role has

been limited to providing storage and selection services to small-scale producers of grains.

The Chilean system for the generation and adoption of agricultural technology involves

a diverse set of institutions, foundations, universities and private companies, which operate

with a high degree of autonomy. Research and development represented 10% of the budget

allocation to agriculture in 2007, equivalent to CLP 21 000 million (USD 40 million).


Import measures

By the time Chile returned to democracy in 1990, tariff protection was mostly uniform

across sectors, with an MFN rate of 15%. This was lowered to 11% in 1991 and then reduced

progressively to 6% by 2003. The price band system for wheat, wheat flour and sugar is the

notable exception, and has meant that tariffs for these products have exceeded the MFN

(and occasionally the bound) rate. The PBS was introduced in 1983 and originally applied to

wheat and wheat flour, edible vegetable oils and sugar.

In 2001, Argentina argued successfully at the WTO that Chile’s PBS was not in

conformity with the tariffication requirements of the URAA. As a result, the PBS was

modified. Following the WTO ruling, the system was discontinued for edible oils. The

bound tariff for sugar was renegotiated and raised from 31.5% to 98%, and as a

consequence Chile was obligated to open a tariff rate quota of 60 000 tonnes for refined

sugar. Finally, the reference price and threshold calculations were changed for wheat,

wheat flour and sugar, with limits imposed such that the payable duty would not exceed

the bound tariff rates (31.5% in the case of wheat and wheat flour, and a revised rate of 98%

in the case of sugar). In the case of wheat and wheat flour, a 1.5% reduction in duties was

specified for each year until 2014, after which the PBS would be abolished.

The new system for wheat was challenged by Argentina, and in December 2006 the WTO’s

Dispute Settlement Body ruled that the modified PBS was still in contravention of WTO rules.

Chile appealed against this decision, but that appeal was rejected in May 2007. As a result,

further changes will need to be made to wheat policy. At present these changes carry few

economic consequences, as in 2003, 2004, 2006 and 2007 a rebate was applied to the MFN tariff,

and, with international prices at high levels, the PBS for wheat becomes irrelevant.

Following the WTO verdict in May 2007, two elements characterise the proposed

reform for the PBS of wheat, legal modification and preferential access:

● Legal modification. Since the PBS is defined by Law (article 10 of Law 18.525), parliamentary

approval is necessary for any changes. Under the proposal before parliament, the PBS

mechanism is to be replaced with a specific tariff of USD 30 for wheat and USD 47 for wheat

flour per tonne. The overall tariff will be the 6% MFN tariff plus these specific rates. In ad

valorem terms, the final tariff will depend on international prices.

● Preferential access. Given that the legal modification elevates protection, a bilateral

protocol will be created that will grant tariff free access to imports of wheat and wheat

flour subject to certain conditions of price. This will guarantee present conditions of

access (0% tariffs for wheat, based on the high international prices). If prices fall, tariffs

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will be activated automatically for imports of wheat and wheat flour. Additionally, the

protocol establishes that tariffs will decrease year by year under the same measures

established by the FTA with the USA, to zero in January of 2015. This protocol will be

applicable to all partners with preferential treatment (Canada, Central America, USA,

Trans-Pacific SEP or P4 – Brunei, Chile, New Zealand and Singapore –, Peru, EU and

MERCOSUR). Proposed changes to the PBS were submitted to congress in

September 2007. These have been approved by the low chamber, and are awaiting

approval by the upper chamber (senators).

After the WTO verdict favouring Argentina, Chile implemented provisional

antidumping duties of 31.1% on flour wheat (1101.0000) imports from Argentina. The

measure started on May 2007 and ended in May 2008. In July 2008, another provisional

antidumping duty of 30.3% was established for the same product, which will last until the

definitive measure is approved by the upper chamber.

Another trade policy measure implemented by Chile is the tariff quota for sugar which

was introduced in 2002 following Chile’s WTO renegotiations following the Appellate

Body’s finding against the PBS, and occurred in parallel with the bound tariff being

increased to 98%. Tariff quotas are maintained on refined sugar, with an out-of quota rate

equal to the MFN rate of 6% plus the duty payable under the PBS and an in-quota rate of 0%.

Since 2006, no quotas have been used, as application of the PBS resulted in zero duties.

Export measures

Chile does not apply export taxes or export subsidies. The only measure implemented

is export promotion, undertaken by the Export Promotion Bureau (PROCHILE) which

basically only reaches small and medium-sized enterprises. PROCHILE has a world-wide

network, with trade offices and agencies located in over 35 countries, covering 90% of

Chile’s export markets. The offices are run by specialised teams that use their market

expertise to help Chilean export companies conduct their international operations.

PROCHILE also possesses 12 domestic regional offices which foster the development of

goods and services suitable for export throughout the entire national territory. These

offices – along with regional governments, the private sector, universities and other

organisations – work together to identify the range of regional products and services for

export and to develop appropriate trade promotion plans. Through a common agreement

with the ministry of agriculture established in 1996, part of PROCHILE is dedicated to the

promotion of agricultural products. The budgetary allocation for agricultural export

accounts for 4% of total budget to the sector CLP 7 500 million (USD 14 million).

Export promotion has been one part of a range of policy and non-policy factors that

have helped boost Chile’s agro-food exports over the past two decades. Among those

factors are: trade liberalisation, the conclusion of trade agreements, the accomplishment

of relative macroeconomic and political stability, the encouragement of FDI, extended

periods of exchange rate depreciation, and supportive government policies, particularly

within the later the SAG’s SPS control and tight measures, assistance of CORFO to

producers in meeting the quality requirements of foreign markets, R&D provided by

Fundación Chile to food and wine sectors, among others. Nevertheless, these policies have

been rather marginal, and the agro-food exports have grown in the absence of an active

government policy. The role of government has been limited to facilitating rather than

directing economic activity.

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Trade agreements

As a complement to unilateral reform, the Chilean government has negotiated a series of

trade agreements that, by offering better than MFN access, have further reduced the degree of

protection. In general, preferential trade agreements have been seen as a practical way of

improving Chile’s market access in a protectionist world. Chile has sought agreements with

all its major trading partners in order to minimise the effects of trade diversion. Given the

country’s low tariffs and the limited use of other protectionist instruments, Chile’s Free Trade

Agreements (FTAs) and Economic Complementation Agreements (ECAs) have often had

“WTO plus” characteristics, covering areas such as investment, trade remedies, intellectual

property and competition policy. The key point to note here is that most of these agreements

include some exemptions from reforms on either side, and that agriculture is the main area

in which those exemptions have been applied. The only agreements without exemptions are

those with Colombia, MERCOSUR and the United States.

Chile has FTAs with Australia, Canada, China, Costa Rica, El Salvador, Japan, Korea, the

European Free Trade Association (EFTA), Mexico, Panama, and the United States. In addition,

Chile has concluded ECAs with Bolivia, Colombia, Cuba, Ecuador, MERCOSUR, Peru, and

Venezuela; association agreements with the European Union and New Zealand-Brunei-

Singapore, and a Partial Scope Agreement with India. These agreements collectively account

for the vast majority of the country’s exports and imports. For countries with which Chile has

an FTA, most tariff lines are covered and the average tariff levied is less than 1%. Chile is

currently in negotiations with Malaysia, Thailand, Turkey, and Vietnam to sign FTAs.

Box 3.2. Structural changes: Preliminary results from the 2007 Agricultural Census in Chile

An agricultural census was undertaken in 2007, ten years after the previous one. In overall terms, total area available for agriculture and forestry appears to be close to its peak, and has been relativconstant at 36-37 million hectares over the past 30 years. Farm numbers decreased 8.6% between 1997 a2007, with the implied average size of operation increasing from 111 hectares to 121 hectares. Iimportant to notice that the average size is large because it includes land used for agriculture as wellplantation forestry, native forest and thicket land, idle land, sterile and non-usable soils. If only productland (agricultural and plantation forestry) is considered the average size is reduced to 19.4 hectares.

Table 3.3. Number and area of agricultural and forestry operations by type in Chile, 1997 and 2007

1. Associated producers are farm associations without legal contracts, and communal producers.2. Corporate farms are limited companies and other societies with legal contracts.3. In the total average size is included idle, sterile and unusable land.Source: Elaborated by ODEPA and OECD using preliminary results from the 2007 Agricultural Census and the 1997 Census resu


Number of farms Area (ha) Average size3 (ha)

1997 2007 % change 1997 2007 % change 1997 2007 % chan

Individual producers 290 997 258 388 –11.2 14 217 480 12 800 546 –10.0 49 50 1.4

Associated producers1 27 917 29 118 4.3 4 041 338 2 259 241 –44.1 145 78 –46.4

Corporate farms2 7 779 11 990 54.1 7 476 481 11 544 839 54.4 961 963 0.2

Publicly owned farms 2 574 1 295 –49.7 9 095 704 7 677 320 –15.6 3 534 5 928 67.8

Indigenous and historical communities

286 478 67.1 1 807 354 2 157 587 19.4 6 319 4 514 –28.6

Total 329 553 301 269 –8.6 36 638 357 36 439 533 –0.5 111 121 8.8

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Notes

1. Smallholders are those with a maximum of 12 hectares of basic irrigation land, regardless of landtenure; that possess an asset value not greater than 3 500 Unidades de Fomento (UF); and that haveagricultural activities as the main source of income. Basic Irrigation Hectares (Hectáreas de RiegoBásico, HRB) are the area equivalent to the potential production of an irrigated hectare from theMaipo river valley (Metropolitan Region), classified as Class I according to its carrying capacity. Todetermine the HRB, each hectare is multiplied by a conversion coefficient estimated, based on soil

Box 3.2. Structural changes: Preliminary results from the 2007 Agricultural Census in Chile (cont.)

Over the past 10 years, there has been an important shift in the structure of farm ownership, with a declin the number farms operated by individuals (–11%) and a similar fall in the area accounted for by these far(–10%). This implies little change in average size of individual farms (50 hectares). At the same time, there been a 54% increase in the number of corporate farms, and a similar rise in area (54.4%); with the average sof these operations increasing slightly to 963 hectares. The main cause of increasing farm sizes has therefbeen the rise of corporate farming rather than changes in the scale of either individual or corporate farmAnother factor influencing these results has been the decrease in the area operated by publicly owned farm

Total agricultural and forestry area declined in two of the 15 regions of Chile (Regions V to IX), increased in regions to the north and south. Excluding forestry plantations, the number of operatiodeclined in all regions except Region VIII, which now contains more farms than any other region.

Only a minority of Chile’s total land is used with annual and permanent crops (1.3 million hectares), wthis area falling by 7.2% between 1997 and 2007. However, this decline masks important regiodifferences: cultivated area increased by 60% in Region IV and by 18% in Region V, but fell to varying degrin Regions VI to X. The area allocated to vineyards increased by 58% to 129 000 hectares, and the acovered by fruits by 38% to 324 000 hectares. All other crops except seeds and flowers showed declinescultivated area, with the area in cereals falling by 26%. There was a slight decline in the area under pastuWhile cattle numbers decreased by 9.2%, there was a 5.2% increase in sheep numbers and a 71.6% increin the number of pigs.

Changes in the type of farm operation, location of production and the product mix have been associawith changes in technology. A 17.8% decline in the use of gravitational irrigation (a reduction171 000 hectares) was more than offset by the rapid emergence of micro irrigation, which increasednearly 300% from 62 000 to 247 000 hectares. The use of mechanical irrigation also increased from 31 00057 000 hectares.

Source: INE, 2008.

Table 3.4. Agricultural and forestry land use in Chile, by activity, 2007Hectares

1. Include natural and native forests and thicket, natural pastures, idle land, etc.

Source: Elaborated by ODEPA using preliminary results from the 2007 Agricultural Census and the 1997 Census results.statLink 2 http://dx.doi.org/10.1787/532182425

1997 2007 Difference Change (%)

Annual and permanent crops 1 403 782 1 303 015 –100 767 –7.2

Improved pasture 1 472 619 1 462 361 –10 258 –0.7

Fallow 445 307 419 714 –25 593 –5.7

Forestry plantations 2 226 014 2 656 307 430 293 19.3

Total productive land 5 547 722 5 841 398 293 676 5.3

Other use, sterile and other unusable soils1 31 090 635 30 601 481 –489 154 –1.6

Total land 36 638 357 36 442 879 –195 478 –0.5

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conditions and water availability, for each community and region across the country (INDAP, 2007).The Unidad de Fomento (UF) is an indexed unit of account used to price items for sale or to specifyamounts to be repaid in the future. The exchange rate between the UF and the Chilean peso isconstantly adjusted for inflation so that the value of the Unidad de Fomento remains constant. In2007, one UF was around CLP 18 800 (USD 36).

Bibliography

Central Bank of Chile (2008), Base de Datos Estadísticos 2008, http://si2.bcentral .c l/Basededatoseconomicos/951_portada.asp?idioma=E.

CNR (2008), Balance de gestión Integral 2007, Santiago, Chile.

DIPRES (2008), Informe de Ejecución Trimestral, Cuarto Trimestre, Período 2007, Budget Department,Chilean Ministry of Finance.

DIRECON (2008), Acuerdos de Libre Comercio, www.direcon.cl/cuadro_resumen.html.

ECLAC (CEPAL) (2002), The Chilean Strategy of Trade Liberalization and Market Access, Santiago, Chile.

FAO (2008), FAOSTAT, http://faostat.fao.org/site/567/default.aspx#ancor.

INDAP (2008), INDAP – Balance de Gestión Integral, Año 2007, Ministry of Agriculture, Government ofChile.

INE (2008), Censo Agropecuario, 2007, National Statistics Institute, Chile.

INE (1998), Censo Agropecuario, 1997, National Statistics Institute, Chile.

ODEPA/INDAP (2002), “Agricultura Chilena: Rubros Según Tipo de Productor y Localización Geográfica”,Documento de Trabajo (Working Document) No. 8, Ministry of Agriculture, Government of Chile.

ODEPA/INDAP (2005), “Agricultura Chilena: Características Sociales de los Productores SegúnTipología, Sexo y Localización Geográfica”, Documento de Trabajo (Working Document) No. 9,Ministry of Agriculture, Government of Chile.

ODEPA (2008), Estadísticas y Precios/Económicas, www.odepa.gob.cl/odepaweb/jsp/estadisticas/economicas.jsp.

OECD (2008), OECD Review of Agricultural Policies: Chile, OECD, Paris.

SAG (2008), Informes de Gestión 2007, Santiago, Chile.

World Bank (2008), World Development Indicators 2008, http://ddp-ext.worldbank.org/ext/DDPQQ/member.do?method=getMembers&userid=1&queryId=135.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 4

China


● China increased the market orientation of its agricultural sector prior to its WTO accession in 2001, but since then this tr

has slowed and for some markets even reversed. In particular, grain markets have been exposed to multiple governm

interventions, further exacerbated by the rise in global prices for agricultural commodities in 2006-08, which intensi

inflationary pressures and food security concerns.

● Compared to the OECD average, the level of support to agricultural producers (%PSE) remains low, but has increased si

2000. The structure of support continues to be dominated by market price support and input subsidies, the least effic

and most trade distorting ways of providing agricultural assistance. OECD analysis shows that only a small part of

type of support is effectively received by farmers. Moreover, the overuse of fertilisers, partly resulting from input subsid

has made agriculture the main source of non-point water pollution in China.

● Domestic and trade policy initiatives in 2007-08, relying on much stronger budgetary support for agricultural inputs a

constraints on grain exports, sent mixed signals to grain producers as the former tend to stimulate production but the la

weaken supply incentives by depressing domestic vis-à-vis world market prices. Such price policies provide impl

support for consumers, but tax producers.

● While developments on China’s domestic agro-food markets would not suggest that the country could be considered as

of the main causes for the recent food price hikes on global markets, China’s reaction to the food crisis through vari

measures limiting trade, in particular exports of grains, may have delayed adjustments and postponed a fall of prices

international markets, in particular for rice.

● China continues to strengthen farmers’ legal rights to land as evidenced by the Property Law adopted in 2007. Howe

mortgage of farmland rights is still strictly prohibited. Allowing the use of long-term land lease contracts as collateral co

at least partly improve farmers’ access to credit. More efforts are also needed to implement existing laws. In particu

compensation paid to farmers for lost access to land should reflect the market value of land and not the much low

estimated value based on the returns to crops produced on that land in preceding years as currently practised.

● Recent changes in China’s agricultural policy need to be seen within a broader context of policies affecting the ru

population at large, including farmers. Such policies are discussed in detail in other OECD studies (OECD, 2009),

China’s increasing effort to improve rural infrastructure and to improve access to basic public services such as educat

health care, social security combined with the recent agricultural tax reform and further relaxation of labour markets

be commended as policies addressing the core of the rural-urban divide and contributing to more balanced developmen

the Chinese economy in the mid-term.

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While broad-based rural development to combat the rural-urban divide remains

China’s priority, policy developments in 2007-08 were dominated by responses to global

increase in food prices. New policy measures included the suspension of export rebates on

grain and grain products, which were later reinforced by provisional export taxes and

export licences on grains. Other policy measures included duties on fertiliser exports,

increased budgetary support for agriculture, new subsidised insurance programmes, an

increase in minimum guaranteed prices for grains, food price caps and consumption

subsidies.

● Support to producers (%PSE) increased from 3% in1995-97 to 9% in 2005-07 reflecting both increasedMPS and growing budgetary support for farmers. Thelevel of support is still considerably below the OECDaverage of 26% in 2005-07.

● The share of the most distorting forms of support(based on commodity output and variable input use)in the total PSE decreased to 52% in 2005-07 from 62%in 1995-97.

● Prices received by farmers were on average 4% higherthan those observed on the world markets in 2005-07,while they were just 1% higher in 1995-97 (NPC). Farmreceipts were 10% higher than they would have beenat world prices in 2005-07 compared to 3% higher in1995-97 (NAC).

● Producer Single Commodity Transfers (SCT) as ashare of commodity gross farm receipts are thehighest for cotton, sugar, maize and sheepmeat. Theshare of SCT in the total PSE was 32% in 2005-07.

● According to the %CSE, the implicit tax on consumersincreased from 2% in 1995-97 to 4% in 2005-07.

● Support for general services provided to agriculture(GSSE) increased in nominal terms, but fell as a sharein total support (TSE) from 41% in 1995-97 to 27% in2005-07.

● Total support to agriculture as a percentage of GDPincreased from 1.60% in 1995-97 to 2.23% in 2005-07.This is higher than the OECD average of 0.97% in2005-07.


Figure 4.1. China: PSE level and composition over time


Figure 4.2. China: Producer SCT by commodity, 2005-07


-3-2-10123456789

101112

-15-10-505

1510

202530354045505560

% PSEMPS and budgetary support, billion USD



1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-30 -20 -10 0 10 20 30 40SCT as % of PSE

Other commoditiesMilk

Beef and vealWheat

PigmeatRiceEggs

PeanutsApple

RapeseedPoultry

SoybeanSheepmeat

MaizeSugar

Cotton

MPS SCT as % of PS

% of commodity gross farm receip

Other SCTPayments based on output

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Table 4.1. China: Estimates of support to agricultureCNY million

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for China are: wheat, maize, rice, rapeseed, soybean, peanuts, sugar, apple, cotton, milk, beef ansheepmeat, pigmeat, poultry and eggs.Source: OECD, PSE/CSE database 2008.


1995-97 2005-07 2005 2006 20

Total value of production (at farm gate) 1 996 250 3 563 221 3 292 420 3 318 872 4 078of which share of MPS commodities (%) 73 63 63 64

Total value of consumption (at farm gate) 2 053 919 3 996 844 3 439 235 3 810 610 4 740Producer Support Estimate (PSE) 64 122 347 021 272 075 390 387 378




with input constraints 0 0 0 0Based on on-farm services 3 999 21 538 18 593 22 533 23

with input constraints 0 0 0 0Payments based on current A/An/R/I,1 production required 3 866 45 369 25 738 44 404 65

Based on Receipts / Income 3 866 17 484 12 538 18 204 21Based on Area planted / Animal numbers 0 27 885 13 200 26 200 44

with input constraints 0 0 0 0Payments based on non-current A/An/R/I, production required 0 0 0 0Payments based on non-current A/An/R/I, production not required 6 000 22 122 22 173 22 593 21

With variable payment rates 0 0 0 0With fixed payment rates 6 000 22 122 22 173 22 593 21

Payments based on non-commodity criteria 0 30 379 31 831 28 200 31Based on long-term resource retirement 0 30 379 31 831 28 200 31Based on a specific non-commodity output 0 0 0 0Based on other non-commodity criteria 0 0 0 0

Miscellaneous payments 0 0 0 0Percentage PSE 3 9 8 11Producer NPC 1.01 1.04 1.04 1.06Producer NAC 1.03 1.10 1.08 1.12General Services Support Estimate (GSSE) 46 121 129 375 117 507 129 845 140

Research and development 447 2 229 1 990 2 142 2Agricultural schools 3 303 20 160 16 256 21 194 23Inspection services 2 214 7 319 6 108 7 436 8Infrastructure 10 773 41 336 39 407 41 406 43Marketing and promotion 0 11 0 17Public stockholding 29 384 58 320 53 746 57 650 63Miscellaneous 0 0 0 0


Transfers to producers from consumers –14 390 –140 918 –108 298 –185 465 –128Other transfers from consumers –12 691 –45 844 –20 383 –52 980 –64Transfers to consumers from taxpayers 2 101 90 93 94Excess feed cost –5 691 20 183 18 775 24 005 17




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Policy context: China’s agriculture at a glance

Agriculture is an important sector of the Chinese economy, but while its share in total

employment is still high at 40.8%, its contribution to GDP fell to 11.3% in 2007 (including

forestry and fishing). Agricultural labour productivity is low, at only one-fifth of the level in

the rest of the economy, contributing to a record rural and urban income gap in 2007:

average income per head was 3.3 fold higher in urban areas than in rural areas. Agriculture

is much less integrated with global markets than the rest of the economy as shown by its

3% share in total China’s exports and 4% share in imports. As a consequence of economic

growth, China became a net food importer in the mid-2000s. As food prices increased, the

share of food in total living expenditures increased slightly to 38% in 2007.

Figure 4.3. China: Evolution and annual changes of agricultural

output, 1995-2007


Figure 4.4. China: Agro-food trade, 1995-2007


Table 4.2. China: Basic economic and agricultural indicators, 2005-07

n.a. not available.statLink 2 http://dx.doi.org/10.1787/532253271668

Source: China Statistical Yearbooks, NBSC, various editions; ChinaCustoms Statistics, 2008; FAO, FAOSTAT Database, 2008; IMF,International Financial Statistics, 2008; UN, UN Comtrade Database, 2008;World Bank, World Development Indicators, 2008.

2005 2006 2007

Basic economic indicatorsGDP (USD billions) 2 244 2 658 3 280GDP growth (%) 10.4 11.6 11.9GDP per capita, PPP (USD) 4 088 4 682 5 345

Inflation (annual average, %) 1.8 1.5 4.8Exchange rate (annual average, local currency per USD) 8.2 8.0 7.5Population (million) 1 305 1 312 1 320Population in rural areas (%) 57.0 56.1 55.1

Share in GDP (%)Agriculture 12.5 11.3 11.3Industry 47.5 48.7 48.6Services 40.0 40.0 40.1

Share in employment (%)Agriculture 44.8 42.6 40.8

Industry 23.8 25.2 26.8Services 31.4 32.2 32.4

Average share of income spent on food (%) 39.3 37.9 38.2Basic agricultural indicatorsAgro-food exports (% of total exports) 3.6 3.2 3.0

Agro-food imports (% of total imports) 4.3 4.0 4.3Agro-food trade balance (USD million) –1 464 –960 –4 350GAO (% change from previous year) 5.7 5.4 3.9Total cereal production (million tonnes) 427.8 451.0 456.3Total meat production (million tonnes) 69.4 70.9 68.7Natural resources and farm structure

Average farm size (ha) 0.5 0.6 0.6Agricultural land (million ha) 556.3 n.a. n.a.Arable land per capita (ha) 0.1 0.1 0.1

Land sown to crops (million ha) 155.5 152.1 153.5

020406080

100120140160180200220240

1995=100


Annual rate of growth,

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-10-505

1015202530354045

USD billion

Agro-food balance (including fish and fish productsAgro-food import (including fish and fish products)Agro-food export (including fish and fish products)

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

200

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Policy developments

Main policy objectives and instrumentsThe key priority for the current 11th Five Year Plan (2006-10) is to “build a new socialist

countryside”. Within this broad framework, food security through 95% self-sufficiency in

grain production, doubling rural households’ income by 2020, improved food safety,

environmental protection, agricultural competitiveness, and improved social and technical

infrastructure in rural areas can be identified as major objectives related to agriculture,

farmers and the countryside (so called three nongs). For the five consecutive years of 2004-08,

“No. 1 Documents”, the top priority documents adopted jointly at the beginning of each

year by the Central Committee of the Communist Party and the State Council,

concentrated on various aspects of the three nong issues.

Market price support provided through tariffs, tariff rate quotas (TRQ) and state

trading, combined with minimum guaranteed prices for rice and wheat, is the main

channel for providing support to Chinese farmers. The second major channel is through

input subsidies for agricultural chemicals (in particular fertilisers), improved seeds and

agricultural machinery. Support to grain producers is further reinforced by direct payments

based on area sown to rice, wheat and corn. Alternatively, payments for returning

farmland to forests (known as the “grain for green” programme) reflect environmental

concerns.

Within general services, the most important expenditures relate to agricultural

infrastructure, primarily for irrigation and drainage facilities, and to public stockholding of

grains. Consumer support measures are based on food price subsidies.

China’s institutional framework for the formulation and implementation of agricultural

policies is complex, with at least 16 central government institutions involved. Co-ordination

amongst these agencies is attempted at the level of joint Communist Party and State Council

bodies, but it is difficult as their functions often overlap and budgets at their disposal often

serve similar objectives. In addition, since the reform of the fiscal system in 1994, sub-

national governments have been required to co-finance certain elements of policy-related

costs from their own budgets. Due to the differences in financial capacity of sub-national

governments across China, the implementation of some national policy programmes is

adjusted by local governments to match local conditions. Thus, although they have no

specific policy formulation role, sub-national governments have considerable control over

how policy is actually implemented within their jurisdiction (WTO, 2008).

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Box 4.1. Food price inflation in China

In 2007, China’s CPI increased by 4.8%, which was the highest level over the past ten years. Food pricwhich account for about one-third of China’s CPI, rose by 12.3%, with consumer prices for grains rising6.4%, meat and poultry products by 31%, edible fats and oils by 26.3%, eggs by 21.8% and fresh vegetables7.9%. The government set a target CPI of 4.8% for 2008, but by mid-2008 prices had already increased7.9%. However, monthly CPI rates have decelerated from a high of 8.7% y/y in February to 4.0%October 2008, and monthly price indexes for food from 23.3% (12-year high) to 8.5%, respectively.

High food inflation in China partly reflects global market developments. As the country has bebasically integrated with global markets, domestic prices are to a large extent guided by those international markets, in particular for commodities on which China is strongly import-dependent suchoilseeds and vegetable oils. However, there was a number of domestic short-term factors which emergfrom longer term trends such as increasing demand for food, higher farm input costs (energy, fertilisers awater) and shrinking availability of agricultural land and, seasonally, of labour. Short-term domestic supshortfalls in certain food categories had a more immediate impact on food prices. The most important owas an outbreak of Porcine Reproductive and Respiratory Syndrome (PRRS), or Blue Ear Disease,May 2007 which caused a loss of an estimated 40 million pigs and resulted in a pork price increase of 4compared to 2006 (GAIN-CH8025, 2008). The fall in pork supply shifted demand to other meats thinflating their prices, in particular of poultry. Maize production was adversely impacted by persistedrought in north-eastern China in May-July 2007. The worst snow storms in almost 50 years, which China from mid-January to early February 2008, and the disastrous earthquake in Sichuan in May 2008 astimulated expectations of further increases in food prices.

Curbing inflation and stabilising food prices became the primary tasks for the government in the fihalf of 2008. Some policy measures applied were of a macroeconomic nature, such as allowing appreciation of the CNY to shield domestic markets from growing commodity prices on internatiomarkets, but a wide range of policy measures targeted directly agricultural and food markets (most of themeasures are presented in a greater detail in other sections of this chapter):

● Disincentives for grain exports: in December 2007, the government removed grains, soybeans and thderived flour products from the VAT export rebate; in January 2008 provisional export taxes on the sagroup of products were imposed; in addition, grains and grain flour products became subject to explicence management.

● Disincentives for ethanol exports: in January 2007 the government removed the 13% VAT rebate ethanol exports; the government also stopped approving any new grain-based biofuel processing plain 2007 and 2008.

● Disincentives for fertiliser exports: in mid-February 2008 the government imposed export duties on fokinds of fertilisers; for the period of April-September 2008 this measure was further reinforced by a 10special duty on fertilisers and related material exports.

● Incentives for food imports: in May 2008, the government temporarily reduced import tariffs on selecfood products.

● Increased budgetary support for agricultural production in 2008: higher support for farm machinpurchases; increased subsidies for inputs such as fuels, fertilisers and improved seeds; increased dirpayments for grain producers; new pilot insurance schemes for crop and livestock producers.

● Increased supply of grains from the government-held stocks and a request to increase frozen mreserves at the province level.

● Increase in minimum purchase prices for wheat and rice in 2008.

● Food price caps and consumption subsidies: to reduce inflation expectations, in January 2008 tgovernment announced price controls on cooking oil, pork, eggs, instant noodles, milk and grainsaddition to temporary price freezes on gasoline, natural gas and electricity.

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Prior to 2004, state pricing, supported by a state procurement system, was in operation

for major agricultural commodities. Since then, centrally fixed prices are only applied to

tobacco, which remains under a state monopoly resulting in strict control over the

production, marketing and trade of tobacco products.

Box 4.1. Food price inflation in China (cont.)

Inflationary pressures eased during the course of the year, partly due to a fall in commodity prices global markets. Disincentives for grain exports and trade controls led to a significant fall in domestic pricfor wheat and rice relative to international levels thus benefiting consumers but taxing agricultuproducers and weakening supply responses. Export restrictions contributed to a deterioration in Chinagro-food trade balance in the first half of 2008. It is worth noting that while domestic wholesale prices importable oilseeds and for politically less sensitive maize largely followed world market developmendomestic prices for wheat and rice became almost completely delinked from world markets in 2007(Figure 4.5). As food prices and overall inflation edged downwards during the course of the year, tgovernment removed controls on food prices and reduced export taxes on grains and grain flour produas from 1 December 2008.

Figure 4.5. China’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2006-08

CNY/tonne

Domestic prices refer to the national wholesale prices; for international prices: wheat is US HRW price; rice is 5% broken, ThailaCorn (US), no. 2, yellow, f.o.b. US Gulf ports; soybeans (US), c.i.f. Rotterdam.Source: China Zhengzhou Wholesale Market and World Bank Commodity Price Data, September 2008.


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In May 2004, China allowed qualified firms to buy and sell grains on the open market,

and largely liberalised grain prices on domestic markets. However, the government

continues to regulate the grain market through national grain stocks, minimum purchase

prices, state trading enterprises, tariff rate quotas management, export taxes and changes

in export VAT refunds for grains. In addition, grain producers are benefiting from a growing

range of budgetary transfers such as direct payments and input subsidies (see below).

Minimum prices for grains are set every year by the National Development and

Reform Commission (NDRC) in consultation with other governmental institutions. The

marketing entities responsible for intervention purchases at minimum prices are

SINOGRAIN (China Grain Reserves Corporation) and its branches, and provincial grain

reserve corporations. Purchases at minimum prices are funded by loans from the

Agricultural Development Bank. The loans are recovered by commodity sales later in the

same marketing year or in subsequent years.

The minimum prices were first announced in 2004 for early indica rice and japonica

rice (Table 4.3). The level of prices was maintained in 2005 but the coverage was extended

to include middle and late indica rice. In 2006, the level of prices remained unchanged, but

the coverage was further extended to include wheat. As wheat market prices fell below the

minimum levels during the harvest period, China’s government engaged in a large-scale

intervention purchases which accounted for about 40% of total wheat production.

Intervention purchases of early indica rice were much smaller and covered about 2% of

production. In 2007, the level and the coverage of intervention prices remained unchanged,

but to cap the rise in market prices for wheat, the government held regular auctions at

provincial wholesale markets releasing about 40 million tonnes of wheat from its stocks.

In 2008, the minimum prices were increased by 4%-7% for wheat and by 9%-10% for rice,

but they remained below the domestic market prices and much below the world market

prices for these commodities (Figure 4.5).

The purchases of grains at minimum prices are geographically limited to provinces

being major rice and wheat producers and in which the above mentioned qualified

marketing agencies operate (SINOGRAIN and its branches, and the provincial grain reserve

corporations). These are four provinces for the early indica rice: Anhui, Hubei, Jiangxi and

Hunan; seven provinces for other types of rice (the middle and late indica as well as for the

Japonica rice): Jilin, Heilongjiang, Anhui, Jiangxi, Hubei, Hunan and Sichuan (in 2008,

Liaoning has also been added to the list); and six provinces for wheat: Hebei, Jiangsu,

Anhui, Shandong, Henan and Hubei.

Table 4.3. Minimum purchase prices for grains in China, 2004-08Per tonne

Source: Li, X., 2008.statLink 2 http://dx.doi.org/10.1787/532254535465

2004 2005 2006 2007 2008

CNY USD CNY USD CNY USD CNY USD CNY USD

Rice

Early indica paddy rice 1 400 169 1 400 171 1 400 176 1 400 186 1 540 223

Middle and late indica paddy rice 1 440 176 1 440 181 1 440 191 1 580 229

Japonica paddy rice 1 500 181 1 500 183 1 500 188 1 500 199 1 640 238

Wheat

White wheat 1 440 181 1 440 191 1 540 223

Red and mixed wheat 1 380 173 1 380 183 1 440 209

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Minimum prices for grains are closely linked with China’s grain reserve system which

is under the overall responsibility of the State Grain Administration (SGA). The grain

reserve system consists of four levels: central (national), provincial, prefecture, and county.

The national level reserve is handled by SINOGRAIN while sub-national reserves are under

the responsibility of local grain reserve corporations. SINOGRAIN is responsible for

purchases of grains at market or minimum prices (when it is above market price), storage,

delivery, processing, and import/export operations for the central grain reserves.

Government stocks consist mainly of wheat, rice and maize. According to the “Outline of

Middle and Long Term Plan for Grain Security (2008-20)” released by the government in

November 2008, the share of wheat and rice in the central reserve should increase to no

less than 70%. Data on overall grain stocks in China are not readily available. In March 2008,

China’s Prime Minister announced that China’s grain stocks amounted to 150-200 million

tonnes, which is an equivalent of 3-5 months of overall use of grains in China for both

human consumption and feed. In addition, Chinese farmers keep on-farm post-harvest

stocks, which in total could be close to the stocks kept by the government agencies.

Selected other agricultural commodities are also subject to government-ledinterventions on domestic markets. For example, while the cotton market has been

largely liberalised, the reserve system is still used to intervene on the domestic market to

stabilise prices and the Agricultural Development Bank of China continues to provide

targeted loans on favourable terms for purchasing cotton. In January 2007, the China State

Cotton Reserve Corporation purchased a total of 300.8 thousand tonnes of cotton through

open bidding. Roughly the same amount was then released to the market in July 2007

when cotton was in short supply (GAIN-CH8037, 2008). Similarly, state sugar reserves are

used to mitigate price fluctuations on the domestic sugar market. Disruptions on the

domestic market for pork, due to PRRS and natural disasters such as the May 2008

earthquake in Sichuan Province, led the Ministry of Commerce to increase frozen meat

reserves to guarantee adequate supply and to request provincial level government

reserves be large enough to supply China’s urban population of above 500 million for

seven days (GAIN-CH8078, 2008).

Direct payments were initiated as a trial in 2002 and implemented nationally in 2004 to

support grain production and to increase grain producers’ incomes. Payments are based on

current area sown to rice, wheat or corn and are financed from the National Grain Risk Fund.

Initially, payments were targeting 13 major grain producing provinces, but later were

extended to almost all provinces. However, not all sown areas are covered by the subsidy

scheme. It is up to the local government to determine the “major producing area” which can

obtain the subsidy. In general, the payment rate is CNY 10-15 per mu (1/15 ha) (USD 22-33/ha),

but this can vary between localities as central government funding can be supplemented

from local sources, e.g. in Beijing and Shanghai the payment can exceed 50 CNY/mu

(USD 109/ha). Central government funding for direct payments shows an upward trend, from

CNY 11.6 billion (USD 1.4 billion) in 2004 to 13.2 billion (USD 1.6 billion) in 2005, 14.2 billion

(USD 1.8 billion) in 2006 and 15.1 billion (USD 2 billion) in 2007 and 2008.

Taking into account that an average wheat yield was around 5.3 tonnes per hectare

and that an average purchase price of wheat was CNY 1511 (USD 201) per tonne in 2007, it

can be estimated that direct payments at an average of CNY 190 (USD 25) per hectare

constituted just 2.3% of wheat producers’ gross revenues in 2007. The impact of direct

payments on grain producers’ revenues is therefore quite limited.

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In response to the reduction in pig production in 2007, the government implemented

a subsidy for reproductive sows. The original subsidy was CNY 50 (USD 6.6) per sow but

this doubled to CNY 100 (USD 14.5) in 2008. The total amount allocated for this subsidy was

CNY 1.125 billion (USD 150 million) in 2007. Other payments aimed at stimulating livestock

production included subsidies for the artificial insemination of dairy cows, and payments

of CNY 500 (USD 72.5) for each high quality dairy cow heifer produced from pure-bred

breeding stocks with registered bloodlines. In addition, a new regulation on corporate

income tax was issued, effective 1 January 2008, exempting companies involved in animal

and poultry rearing from paying corporate income tax, while lowering tax rates for other

domestic companies from 33% to 25% (GAIN-CH8078, 2008).

Until the end of the 1990s, Chinese farmers paid various taxes and fees which became

a heavy burden on them. In 2000, the government implemented a pilot rural tax reform,

which was then extended to the whole territory of China in 2003. It started by incorporating

most agricultural taxes, fees and charges into one tax, and then capped the tax at a

maximum rate of 8.4% relative to the annual grain-equivalent value of agricultural output for

the previous year. Other reforms included the removal of the animal slaughter tax and of the

special agricultural tax on all products except tobacco. In 2004, the government announced

that the agricultural taxes would be phased out over five years. In fact, the reforms were

implemented faster than anticipated, and at the beginning of 2006 the government

announced that agricultural taxes, including charges and fees, had been discontinued.

Currently, in addition to the tobacco leaf tax (20% of the purchase price for tobacco leaves)

and VAT (13%), the only agriculture-related taxes are the deed tax (charged when land

contract is transferred) and the tax on the use of cultivated land or farmland occupation tax

(charged when arable land is used for non-agricultural purposes) (WTO, 2008).

To compensate local authorities for lower tax revenues due to the reform, the central

government arranged transfers which increased from CNY 52.4 billion (USD 6.3 billion) in

2004 to CNY 66.2 billion (USD 8.1 billion) in 2005, and then to CNY 100 billion

(USD 13.3 billion) each year in 2006 and 2007. Around three-quarters of these transfers are

financed by the central government, with the rest transferred from provincial and prefectural

governments to local authorities at the county and the township levels. While the level of

transfers is large and known, the actual agricultural subsidy component is probably

negligible. In fact, it can be argued, that before the reform, farmers were paying taxes which

would not be due had general tax rules such as minimum taxable income been applied to

agriculture. For example, in 2007, the minimum taxable personal income in China was

CNY 1 600 (USD 213) per month. With an average monthly net income per person in rural

households of CNY 345 (USD 46), and assuming that out of an average rural family of four

persons, two are economically active, this gives an average monthly income per economically

active person of CNY 690 (USD 92), which is well below the minimum taxable income level.

The “grain for green project” (officially called the Returning Farmland to Forests

Programme) was launched in 1999. Under this programme, cultivated lands in

environmentally fragile areas are retired from crop production (mainly grains), and

converted to pasture or forest. Up to 2003, participating farmers were provided with grains

and cash subsidies according to the area of damage-susceptible land they “retire”. In 2004,

the grain allocation was converted to a cash equivalent. The period for which “retired” land

is subsidised is set at two years for land returned to pasture, five years for land converted

to “economic” forests and eight years for land converted to “ecological” forests. In addition,

farmers are provided with a one-time cash subsidy to purchase seeds or tree seedlings for

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planting, and a yearly subsidy for tending and miscellaneous expenses on the newly

converted land. Funds are also provided to the forestry agencies to cover technical support

and programme design. Between 1999 and 2005, “grain for green project” covered

22.9 million hectares in 25 provinces, including 9 million hectares of cultivated land

converted to forests, 12.6 million hectares of afforested deserted land and 1.3 million

hectares of forest planted in the mountains. The programme slowed significantly after

2003 due to an increase in grain prices and to growing concerns over grain security. While

the programme has been continued within the “11th Five Year Plan” (2006-10), at a total

cost of CNY 137.7 billion (USD 19.7 billion), the majority of the funds are to be spent on the

land already converted within the 10th Five Year Plan and the total new area to be

afforested has been reduced to 15.7 million hectares. In addition, new forests will be

planted mostly in the deserted and mountain areas, and just 2.3 million hectares are

foreseen to be converted from crops to forests. In 2007, the budgetary allocation for this

programme amounted to CNY 28.9 billion (USD 3.9 billion).

Input subsidies

The centrally funded comprehensive subsidy on agricultural inputs was introduced

in 2006 to compensate farmers for an increase in prices of agricultural inputs such as

fertilisers, pesticides, plastic films and diesel. Costing CNY 12 billion (USD 1.5 billion) in its

first year, the amount more than doubled in 2007 to CNY 27.6 billion (USD 3.7 billion). In

2008, it increased to CNY 63.8 billion (USD 9.2 billion), thus becoming one of the most

important budgetary transfers supporting agriculture. The targeted key beneficiaries of

this subsidy are grain producers, as the amounts transferred to provinces depend on grain

planting areas. In fact, as these payments are made per unit of land, their implementation

is similar to direct payments discussed above.

In addition to the comprehensive input subsidy, there is a set of policy measures

aimed at lowering prices of chemical fertilisers and at increasing their domestic supply.

These measures include preferential prices for electricity and natural gas used by fertiliser

producers, preferential transportation prices for fertilisers, an exemption from the rail

construction fund and an exemption from VAT.

To control prices of fertilisers, the government implements a guiding price regulation.

The basic ex-factory price of fertilisers is set by the government and prices can float within

a range of 15%. Enterprises are requested to strictly abide by this regulation. For prices of

some fertilisers already liberalised, the government implements an application and

registration system to control the range and frequency of price increases. The total profit

margin is controlled within 7% from the ex-factory to the retail level, 1% at the first

wholesale level, 3% at the second wholesale level and 3% at the retail level.

The Chinese government also implements a policy of “encouraging import and

limiting export” of fertilisers. To encourage imports, as from 1 January 2008, imports of

diamine phosphate were exempted from VAT, and imports of sulphur were exempted

from an import tariff of 1.5% and from 13% VAT. To curb fertiliser exports, the government

abolished the tax rebate for urea exports in March 2004 and began charging an export

tariff on urea in 2005. At the end of 2007, the General Administration of Customs decided

to increase the export tariff on urea to 30% for the period from January to March 2008; to

35% from April to September; and to 25% from October to December. In April 2008, the

government decided to charge an additional 100% special tax on exports of fertilisers.

However, as export taxes depressed exports and lowered domestic prices for fertilisers,

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international prices became even more attractive for potential exporters. To further

discourage exports the government increased the export tax to 150% in September 2008.

Despite these measures, fertiliser prices increased significantly during the spring

planting season, including by 70% for the compound fertiliser (N, P and K) (GAIN-CH8062,

2008).

Partly due to input subsidies stimulating the use of chemicals, application rates of

chemical fertilisers have increased around four-fold since 1980. China now ranks among

countries with the highest intensity of fertiliser use in the world. The law of diminishing

returns to fertiliser use became evident from the mid-1990s onwards as yields reached a

plateau, while fertiliser use continued to rise. The overuse of fertilisers in China is

estimated at between 20% and 50%. This increases agricultural production costs, and

makes fertilisers one of the leading causes of surface and groundwater pollution. Farmers

are often misled by input suppliers who have a vested interest in selling more fertiliser, and

are not sufficiently informed about the merits of reducing fertiliser use. Discontinuation of

fertiliser subsidies and the provision of adequate information and training by research,

education and extension services to farmers would be effective in terms of both increasing

farmers’ incomes and reducing environmental damage.

Nominally, farmers enjoy preferential prices for electricity and water. For example,

official data suggests that, in 2005, average electricity tariffs for farming were CNY 0.375/KWh

(USD 0.05) compared to CNY 0.448/KWh (USD 0.06) for household users and CNY 0.816/KWh

(USD 0.1) for business users (WTO, 2008). However, as end user tariffs are determined by

taking into account the cost of electricity generation, the electricity loss during

transmission, the electricity transmission price, and are adjusted to reflect the increase in

the price of coal and are differentiated regionally, the actual subsidy component for

farming is not certain. Also for water, the subsidy component is difficult to measure. In

addition to the usual difficulties associated with differences in water supply costs and

water quality for various end users, price comparison is complicated by the fact that the

regulated price of water is measured on a per cubic meter basis while water fees paid by

farmers are frequently paid on a per planted/sown area basis.

Subsidies to support the sowing of improved quality seeds started in 2002. The

amounts transferred for this purpose increased every year from CNY 100 million

(USD 12 million) in 2002 to CNY 4.07 billion (USD 0.51 billion) in 2006, then to CNY 6.66 billion

(USD 0.88 billion) in 2007 and almost doubled to CNY 12.1 billion (USD 1.75 billion) in 2008.

Wheat, rice, maize and soybeans were initially covered by the scheme, with rapeseeds and

cotton added in 2007. While the unit subsidy has remained unchanged in recent years, at

CNY 10 per mu (USD 22/ha) for wheat, soybean, maize, early indica rice and rapeseed, and at

CNY 15 per mu (USD 33/ha) for cotton, middle and late indica rice, the subsidised area

increased substantially. For example, for wheat, the area covered doubled from 100 million

mu (6.7 million hectares) in 2007 to 200 million mu (13.3 million hectares) in 2008. For maize,

the area jumped from 30 million mu (2 million hectares) mu to 200 million mu (13.3 million

hectares) over the same period. The whole area of 440 million mu (29.3 million hectares)

planted to rice was planned to be covered in 2008.

The actual implementation mechanism of this subsidy may vary depending on

commodity and province, but normally takes the form of either direct payments or reduced

seed prices. As a direct payment to farmers, it is provided per unit of land at the above

mentioned rates and it is not monitored to determine whether the payment is used for

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seed purchases or for other expenses. In other cases, it may be a payment to the seed

company to provide a specific type of seed at reduced price or a reimbursement to the

farmer for seeds purchased.

In 2007, the government allocated CNY 2.15 billion (USD 286 million) to subsidiseagricultural pilot insurance schemes, of which CNY 1 billion (USD 133 million) was

allocated to grain insurance in six provinces and CNY 1.15 billion (USD 153 million) for the

insurance of reproducible sows. The Ministry of Finance announced that the subsidy would

increase to CNY 6.05 billion (USD 880 million) in 2008. In general, for the pilot insurance

scheme, the cost of insurance fees is shared by the central government, local government

and farmers themselves. For example, in 2008, in Sichuan province, 35% of the crop

insurance fee was covered by central government, 40% by local government and 25% by

farmers themselves. The ratios for reproducible sows were at 50%, 30% and 20%,

respectively.

Since 2004, the government has provided a subsidy for the purchase of agriculturalmachinery. The subsidy is available to individual farmers as well as so called specialised

households and agricultural machine service delivery organisations. The subsidy fund

increased from CNY 480 mill ion (USD 58 mill ion) in 2004 to CNY 3.3 bil l ion

(USD 439 million) in 2007, of which CNY 2 billion (USD 266 million) was provided by central

government and CNY 1.3 billion (USD 173 million) from local governments. In 2008, the

central government contribution alone increased to CNY 4 billion (USD 580 million) and

the geographical coverage extended from around two-thirds of agricultural counties to all

counties in China. The programme compensates the cost of purchases by reimbursing the

purchaser or compensating the seller for 20% to 30% of the purchase price. The programme

is implemented at the provincial level, and it is up to local governments to decide on the

machinery and models eligible for the subsidy. The subsidy has been used primarily to

target the mechanisation of wheat harvesting and rice planting, but in 2007, trials started

to include support for the mechanisation of corn harvesting.

Preferential loan rates for state marketing organisations to fund purchase and storage

of key agricultural commodities were terminated in February 2006. Preferential loans for

poor regions and for poverty alleviation in rural areas were continued at the rates of about

half of the commercial rates. In June 2008, the government announced that the allocation

of these loans would be shifted from the sole responsibility of the Agricultural Bank of

China (ABC) to multiple banks and that the interest rates would be in line with the

prevailing commercial rates.

There are a large number of programmes, mostly under the responsibility of the NDRC

and the Ministry of Finance, that combine support for agricultural infrastructure and foron-farm investment. The most important one, under the responsibility of the State

Agriculture Development Office within the Ministry of Finance, is the National AgriculturalComprehensive Development Funds and Projects. This provides support to so called main

agricultural areas and main grain production areas determined on the basis of output of

key agricultural commodities at the province level. Provinces that are not eligible for such

support are able to designate counties within their jurisdiction which can benefit from

these funds. This programme is focussed on improving land productivity through support

for a wide range of local projects, but preference is given to the construction and up-

grading of small-scale water supply systems for agricultural production. Support can also

be provided e.g. for adjusting waste-land for agricultural production, construction and up-

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grading of local roads important for the transportation of agricultural commodities, local

aforestation initiatives, improvement of storage capacities for agricultural commodities,

dissemination of new technologies for agricultural production, etc. All projects are co-

financed by central government, provincial governments, county and township level

authorities (those designated for the poverty relief funding are not requested to provide

any funding), rural collectives and farmers. According to the available data, transfers for

this programme increased from CNY 20.5 billion (USD 2.6 billion) in 2006 to

CNY 36.4 billion (USD 4.8 billion) in 2007.

Work Relief Programme, financed by the NDRC, also provides support for a wide range

of local projects, with the main focus on rural and agricultural infrastructure in poor areas.

A total of CNY 6 billion (USD 0.8 billion) was raised for this purpose in 2007. Other

programmes tend to focus on individual commodities or group of commodities. The most

important one is High Quality Grain Production Project launched in 2004 and financed by

the NDRC. It operates in 13 main grain production provinces and provides support for land

amelioration projects, creation of specialised large-scale grain production units, promotion

of modern technologies and machinery, dissemination of high quality grain varieties. On

average about CNY 7.8 billion (USD 1 billion) per year has been allocated for financing

investments undertaken within this programme.

Land policies

Arable land continues to shrink in China, from 130 million hectares in 1996 to

121.8 million hectares in 2006. As grain security remains the top priority for the

government, the “strictest farmland protection” policy has been implemented. A “red line”

on arable land at no less than 120 million hectares has been set and the conversion of

farmland for non-agricultural use is strictly controlled.

The land tenure system has not changed in recent years, with farmland being owned

by village collectives, which extend land-use contracts to individual households, currently

for 30 years. However, China’s Property Law of 2007 further formalised farmers’ land use

rights. Consequently, the scope of Chinese farmers’ formal rights for farmland is

considered as essentially no different from farmland rights possessed by farmers in

countries with a private land ownership regime except that mortgage of farmland rights is

still strictly prohibited under Chinese laws (Li, P., 2008). This limits farmers’ access to

credit. In addition, an implementation of these pro-farmer laws continues to be

problematic because of collective cadres’ interests in keeping farmland under their control.

While officially released reports suggest that the number of registered conflicts between

farmers, village collectives and local authorities over land use rights has declined, there are

still many reported cases in which local authorities force farmers to abandon their

contracted land to rent it out to external investors or for the construction of large-scale

commercial farm units. While compensations paid to farmers are typically based on the

value of crops produced on the transferred land in preceding years, rents paid by external

users are market based. The difference has become an important source of revenue for

local authorities.

These issues were addressed during the October 2008 third plenary session of 17th Party

Congress of Communist Party of China (CPC) which approved a document called “TheDecision on Major Issues Concerning the Advancement of Rural Reform andDevelopment”. Among other things, the document says that “markets for the lease of

contracted farmland and transfer of farmland use rights shall be set up and improved to

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allow farmers to sub-contract, lease, exchange and swap their land use rights, or join share-

holding entities with their farmland. Such transfers of land-use rights must be based on

voluntary participation by farmers, with adequate payment and in accordance with the law”

(CPC, 2008). Moreover, the document suggests that farmers should be able to keep their land

use rights for a “long time without change”, which gives an indication that perpetual rights

to land might be considered or, at least, that the current 30-year contracts will be extended.

While this document indicates a move in the right general direction of change, it promises

less than what was expected. It still does not allow farmers to eventually buy or sell the land

or even to mortgage the rented land. It remains to be seen if and how the document will be

translated into law and, then, how the law will be implemented.


Import measures

China’s applied tariffs on agricultural products are at the WTO bound levels. With the

exception of some poultry parts (HS 07), agricultural products are subject to ad valorem tariff

rates. The average applied MFN tariff on agricultural products remained unchanged between

2005 and 2007 at 15.3%, higher than the overall average applied MFN tariff of 9.7%. While

tariffs on grains (33.9%), sugar (29.9%) and tobacco (26.9%) remain significantly higher than

the average, tariffs on fruits, vegetables and animal products, those for which China is

considered to have comparative advantage, are lower than the average (WTO, 2008).

Occasionally, tariffs are adjusted to balance domestic supply and demand. For

example, to meet strong consumer demand and to compensate supply shortages after the

May 2008 earthquake, tariffs were seasonally lowered for six commodities covering

26 tariffs lines, mainly for food and medical supplies. From 1 June to 31 December 2008,

import tariffs for pork were reduced from 12% to 6%; for cod fish, pistachios, infant foods,

whey, and yeast from 6%-25% to 2%-10%; and for soybean and peanut meal from 5% to 2%.

From 1 June to 30 September 2008, the import tariffs for coconut and olive oil were reduced

from 10% and 9%, respectively, to 5%.

Imports of agricultural products are subject to VAT. The rate levied on agricultural

products is at 13%, 4 percentage points less than the general VAT rate. Domestic

agricultural commodities produced and sold directly by small-scale farmers are still

exempted from VAT which gives them some advantage over imported products on which

VAT is charged (WTO, 2008 and OECD, 2005).

Imports of grains, sugar, wool, cotton and some fertilisers are subject to tariff ratequotas (TRQ). In total, 45 tariff lines at the eight-digit level were covered by TRQs in 2007,

down from 55 lines in 2005. In 2006, China eliminated TRQs on vegetable oils thus

implementing a tariff only arrangement. Imports under TRQs are strongly differentiated,

with fill rates ranging from 100% for cotton, 98% for wool and 70% for sugar, to between 1%

and 14% for wheat, maize and rice in 2006 (WTO, 2008).

Commodities such as rice, wheat, sugar, tobacco, cotton and fertilisers are subject to

state trading. Vegetable oils were removed from this list in 2006. With the exception of

tobacco, these commodities are also subject to TRQs. China's TRQ system includes criteria

for allocating part of the quota to a state-trading enterprise (STE) and part to a private

enterprise. In 2007, STEs had the right to import 90% of the wheat quota, 60% of corn, 50% of

rice, 70% of sugar, and 33% of cotton. Imports of tobacco remain under the state monopoly.

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Agricultural imports are subject to automatic or non-automatic licences. While

automatic licensing is applied to monitor imports and for statistical purposes, non-automatic

import licences are used to comply with China's international obligations and to administer

TRQs. All goods imported under TRQs are subject to non-automatic licensing. Automatic

licensing includes some meat products, edible oils, and tobacco products (33 tariff lines at

eight-digit level). China does not apply import prohibitions on agricultural commodities with

the exception of general import prohibitions on such products as opium or ivory (WTO, 2008).

Export measures

China agreed to eliminate export subsidies as part of its WTO commitments and has

notified to the WTO that such subsidies have not been maintained or introduced since 2002

(WTO, 2008).

China maintains the right to apply export taxes. In general, China doesn’t levy such

taxes on agricultural products with very few exceptions, such as a 20% tax on exports of

raw hides and skins of goats. However, to curb domestic food price inflation and to

guarantee domestic grain supplies, the government levied provisional export taxes on

grains and their flour products beginning January 2008. The export tax rates ranged from

5% to 25%, with the rates for wheat and wheat flour at 20% and 25%, respectively. The

export tax rate for maize, paddy rice, milled rice and soybeans was 5% and the rate for

maize, rice, and soy flour products was 10%. However, according to a separate notice by the

State Council, grain and flour exports to Hong Kong, Macao and Chinese Taipei were not

subject to such taxes. This step followed the December 2007 removal of the VAT export

rebate for the same products (see below). In addition, the government also announced that

exports of wheat, corn and rice flour products would be subject to export licensemanagement beginning January 2008. The license regime was intended to cap exports in

the event that flour product exports remain viable despite a high export tax rate (GAIN-

CH8025, 2008). As grain prices on world markets fell during the course of 2008 and domestic

inflationary pressures eased, on 1 December 2008 the government removed the export

taxes on corn, soybeans and corn-based flour, and reduced the export taxes on wheat and

rice to 3%, and on wheat flour to 8%.

China continues to impose global (i.e. irrespective of destination) and destination-

specific export quotas. In 2007, global export quotas applied to cotton, grains (maize, rice,

and wheat) and tea. Destination-specific quotas remain in place for exports of live cattle,

live swine, and live chicken to the Special Administrative Regions of Hong Kong and Macao.

Non-automatic licences are used to distribute these quotas. Other exports, including meat

products, are subject to automatic licensing for statistical purposes (WTO, 2008).

State trading is applied for the export of rice, maize, cotton and tobacco. These

products are also subject to export quotas. Part of these quotas, with the exception of

tobacco, can be exported by private enterprises had such exports been approved.

As for other products, exporters of agricultural products are entitled to VAT rebates at

the time of exportation. Rebates vary across commodities and are often lower than the

statutory VAT rate, which can be considered as a levy on exports. While the statutory VAT

on agricultural goods is 13%, the “usual” export rebate rate for agricultural products is 5%.

In 2007, to promote the use of agricultural commodities for exports, export rebates for

products containing agricultural inputs were increased from 5% or 11% to 13% (WTO, 2008).

However, as from 20 December 2007, the government decided to remove the export rebates

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on 84 products including wheat, paddy rice, rice (milled), corn, other cereals, soybeans, and

their derived flour products to curb growing food prices. The rebate on exports of vegetable

oils was also removed, effective 13 June 2008.

Trade agreements

China acceded to the WTO on 11 December 2001, and since then significantly

accelerated various initiatives to conclude Free Trade Agreements (FTA) with its trading

partners. Under the Framework Agreement on Comprehensive Economic Co-operation

between China and ASEAN, which entered into force in July 2003, both parties agreed to

negotiate the establishment of an ASEAN-China Free Trade Area (ACFTA) within ten

years. An Agreement on Trade in Goods and an Agreement on Comprehensive Economic

Co-operation between ASEAN and China entered into force on 1 January 2005. Reduction in

tariffs resulted in a significant increase in trade between China and the ASEAN countries.

China is also party to the Asia-Pacific Trade Agreement (APTA), a preferential trading

arrangement between developing countries in the Asia-Pacific region. Under the

agreement, 1 652 tariff lines carry rates that are lower than the MFN rates. China has also

signed a number of bilateral FTAs, including with Chile (2005), Pakistan (2006) and New

Zealand (2008). Negotiations on FTAs with Australia, Iceland, Peru, Singapore and the Arab

states from the Gulf Co-operation Council are in progress. Co-operation frameworks, with

a view to establishing FTAs, have been established with India and Korea (WTO, 2008).

Bibliography

Cheng, Guoqiang (2008), “Updates for OECD PSE Database”, Report submitted to OECD.

CPC (2008), http://english.cpc.people.com.cn/66102/6517721.html, News of the Communist Party of China,[accessed on 20 October 2008].

GAIN-CH8025 (2008), Peoples Republic of China: Agricultural Situation, Increasing Food Prices, USDA FAS,April 21.

GAIN-CH8037 (2008), Peoples Republic of China: Agricultural Situation, Cotton and Products, Annual, USDAFAS, May 23.

GAIN-CH8062 (2008), Peoples Republic of China: Agricultural Situation, Grain and Oilseeds Market SituationUpdate, USDA FAS, July 31.

GAIN-CH8078 (2008), Peoples Republic of China: Agricultural Situation, Livestock and Product, USDA FAS,September 12.

Li, Ping (2008), “Optimizing Land Policy and Land Use”, Report submitted to OECD.

Li, Xiande (2008), “Report on Agricultural Policy Developments in China: 2006-2008”, Report submittedto OECD.

OECD (2005), OECD Review of Agricultural Policies: China, OECD, Paris.

OECD (2009), OECD Rural Policy Reviews: China, OECD, Paris.

WTO (2008), Trade Policy Review. Report by the Secretariat, China, WT/TPR/S/199, 16 April.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 5

India


● Compared to the robust growth in other sectors of the economy, the performance of Indian agriculture remains rather pas indicated by slow and erratic growth rates since the mid-1990s. This has become a key concern of the governmentconfirmed by the main objective of the 11th Five Year Plan for 2007-12, to make growth more inclusive.

● The agricultural sector in India has undergone significantly less liberalisation than other sectors of the economy. Conceabout food security and poverty with respect to the second largest population in the world, lead the government to remstrongly involved in regulating India’s agriculture through fixing prices for key agricultural products at the farm aconsumer levels; high border protection; bans on, or support for, exports; and massive subsidies for key inputs suchfertilisers, water and electricity.

● OECD indicators of agricultural support are not calculated for India due to a lack of participation in the agricultural poreview process by the government of India. However, evidence from other studies indicates large fluctuations in the nomirate of assistance around a slightly increasing long-term trend, with a substantial increase between the second half of1990s and the first half of the 2000s. The most recent evaluations, related to the first half of the 2000s, would suggest tthe level of assistance became higher than that for other emerging economies reviewed by the OECD but below the OEaverage. At the same time, the overall liberalisation of the Indian economy, in particular less protective policiesmanufacturing, should, over the longer term, lower input costs for agricultural production.

● The government’s reactions in 2007 and 2008 to higher global food prices confirm a long-term practice of countercyclpolicies aimed at stabilising domestic prices and insulating domestic markets from fluctuations in world prices. As a resdomestic prices for key agricultural commodities remained significantly below world market levels, thus supportconsumers but taxing agricultural producers.

● Considerable input subsidies, in particular for fertilisers, paid to input suppliers to cover the difference between the supcost and the price controlled by the government, are not an effective way of providing income support for farmers as onsmall fraction of such transfers is effectively received by farmers. Moreover, such payments do not encourage farmerssuppliers to improve efficiency and lead to an overuse of inputs with negative environmental effects.

● The budgetary cost of input subsidies and other direct and indirect subsidies for agriculture is significant, which in tmay limit the availability of funding for more effective types of support such as public investment in rural infrastructand research. The Bharat Nirman programme focuses on rural infrastructure and provides a positive example ocomparatively effective measure. Pressures on scarce land may be relieved by providing alternative avenues of employmand income such as development of the rural non-farm sector, but also through further diversification of agricultuproduction. In particular, horticulture and food processing industries provide promising options.

● India’s WTO commitments with respect to agriculture are characterised by relatively high bound tariffs and permitted levelsupport. These give India substantial flexibility in terms of choosing the type of agricultural policy to best serve its interestslight of agriculture’s relatively poor performance, in contrast to other sectors being progressively liberalised, the government cousefully move in the direction of more market-driven policies combined with the reallocation of budgetary support from inputinfrastructure and rural development.

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Overview of support estimates for Indian agriculture

As OECD estimates of agricultural support in India are not available due to a lack ofparticipation of the government of India in the agricultural policy review process, thissection provides a brief overview of the most recent support estimates by other institutionsand researchers.

Pursell et al. (2007) consider India’s agriculture with the main focus on themeasurement of distortions to agricultural prices due to price, trade and exchange ratepolicies that create a gap between actual domestic prices and those under a hypotheticalfree market. The study computes Nominal Rates of Assistance (NRA) for farmers, includingadjustments for direct interventions on inputs such as subsidies for fertilisers andelectricity. To compare results with distortions in other sectors of the economy, the studyalso provides aggregate NRA for non-agricultural tradables and then calculates a RelativeRate of Assistance (RRA) as a ratio of the level of assistance for agriculture to that for non-agricultural tradables (Anderson et al., 2008). The period studied is 1965-2004. Thecommodities covered are milk (classified as an importable product) and rice, wheat, maize,sorghum, groundnut, rapeseed, soybean, sunflower, sugar, cotton, chickpea plus thecategory “fruits and vegetables” (classified as mixed products, meaning that they areexportables, non-tradables or importables depending on their status each year). Figures 5.1and 5.2 present basic results.

Key conclusions are as follows:

● The weighted average NRA across covered products shows a slight upward trend over the40 years under study and reached 15.8% in 2000-04.

● The average NRA for importables has been significantly above that for exportables, butthe difference has narrowed since the reforms began in the early 1990s. While the NRAfor importables averaged 62% in the 25 years to the end of the 1980s, it fell to 32% in thesubsequent 15 years. The corresponding NRA averages for exportables were –25% and–11%, respectively.

● The NRAs fluctuate strongly around their trend values. This might be seen as the resultof the Indian government’s policies aimed at stabilising domestic prices throughinsulating domestic markets from fluctuations in world prices. In particular, the averageNRA for both importables and exportables were lowest in 1974, when international food

Figure 5.1. Average Nominal Rates of Assistance in India, 1965-2004

Per cent

Source: Pursell et al., 2007.statLink 2 http://dx.doi.org/10.1787/530612348754

Figure 5.2. Nominal Rate of Assistance in India by commodity, 2000-04

Per cent

Source: Pursell et al., 2007.statLink 2 http://dx.doi.org/10.1787/530641367182

-60-40-20

020406080

100

Importables ExportablesNon tradable Total

1965

-69

1970

-74

1975

-79

1980

-84

1985

-89

1990

-94

1995

-99

2000

-04-10 0 10 20 30 40 50 60 70

Fruit and vegetablesSoybean

MaizeCotton

GroundnutSunflowerSorghumChickpea

RiceMilk

WheatSugar

Rape/mustard seed

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prices were at record highs, and highest around 1987, when international food priceswere record lows in real terms. This insulating role of policies is particularly evident forrice, India’s main food staple, whose domestic price in real terms has been keptsurprisingly stable during the period under study.

● Historically, the dispersion of NRAs across the products covered has been wide, but it hasnarrowed considerably since the reforms began in the early 1990s.

● The impact of input subsidies, particularly for fertilisers and electricity used in pumpingirrigation water, on the NRA for covered products has been steadily increasing.

● The Relative Rate of Assistance fluctuates, but shows an upward long-term trend. It wasstrongly negative from the mid-1960s to the mid-1980s, reflecting much strongerassistance to producers of non-agricultural tradables compared to that to farmers. But asreforms progressed, leading to substantial cuts in manufacturing protection, combinedwith the slightly upward trend in assistance for agricultural producers, the RRA turnedpositive at the beginning of the current decade.

Orden et al. (2007) measure the level of support by using several variants of marketprice support and Producer Support Estimates (PSEs). The study covers the period of 1985-2002 and includes eleven agricultural commodities (rice, sugar, wheat, corn, sorghum,groundnuts, rapeseed, soybeans, chickpeas, cotton and sunflower). The key conclusion isthat the level of support for agriculture in India has been largely countercyclical to worldprices. It increased when world prices were low (as in the mid-1980s and the period 1998–2002), but decreased when world prices were high (as in the early and mid-1990s). Theresults also show steady increases in budgetary payments for input subsidies, which at theend of the period studied counterbalanced negative support through prices. Depending onthe method of calculation, the percentage PSE for 2002, the last year under study, variedbetween 11% and 19.2%.

Gopinath (2008), using the WTO methodology (the Aggregate Measurement ofSupport-AMS) and referring to the last official Indian notification to the WTO on itsdomestic support to agriculture (1997-98), updates domestic support calculations from1998-99 through 2005-06 and then constructs projections for 2015-16. The authorconcludes that green box support has grown to nearly USD 8 billion in 2005, which isequivalent to about 7% of the value of agricultural production. The two major reasons forthe growth in green box support are public stockholding expenditure and relief paymentsfor natural disasters. The product-specific AMS remained negative and was at about minusUSD 4 billion in 2005, mostly because of the wide gap between external reference pricesand administered support prices. The non-product-specific AMS, with the allocation of80% for fertiliser, electricity and irrigation subsidies under special and differentialtreatment (as India did in its 1997-98 notification), accounted for about 1% of the value ofagricultural production. Even under alternative definitions and measurements of someproduct specific and non-product specific payments, India would still remain well belowthe de minimis exceptions (10% of value of agricultural production).

According to the author, the projected value of India’s agricultural production is expected

to be about USD 163 billion in 2015. Under the assumption that India’s domestic support is

again to be limited by the de minimis exemptions only, as it is currently the case, India’s

support could grow up to USD 32-33 billion. The projected de minimis exemptions would be

about USD 16.3 billion each for product-specific and non-product specific AMS, thus still

giving India substantial flexibility in setting and implementing domestic support policies.

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Policy context: India’s agriculture at a glance

Agriculture accounted for 18% of India’s GDP in 2007 and provided employment to more

than half a billion people, 52% of the total workforce. It is dominated by small-scale farming

and is characterised by low labour productivity, at about one-sixth of the level in other sectors

of the economy. This in turn contributes to low living standards and a high incidence of

poverty in rural areas. In the period 2004/05, 34% of India’s population lived on less than USD

1 a day and as much as 80% lived on less than USD 2 a day (WB, 2007). Agriculture’s importance

in India’s trade is declining, but it still provides about 10% of India’s total exports and remains

a significant net provider of export earnings. The share of food in total consumption

expenditures is high at around 54% for rural households and 42% for urban households.

Figure 5.3. India: Evolution and annuachanges of agricultural output, 1995-20


Figure 5.4. India: Agro-food trade, 1995-2007


Table 5.1. India: Basic economic and agricultural indicators, 2005-07

n.a. not available.statLink 2 http://dx.doi.org/10.1787/532256168668

Source: Ministry of Agriculture, Government of India, 2008; FAO, FAOSTATDatabase, 2008; IMF, International Financial Statistics, 2008; UN, UNComtrade Database, 2008; World Bank, World Development Indicators, 2008.

2005 2006 2007


GDP (USD billions) 809 916 1 171

GDP growth (%) 9.2 9.7 9.0




Population (million) 1 095 1 110 1 123


Share in GDP (%)


Industry 28.8 29.3 29.4

Services 52.4 52.4 52.8



Industry 18.7 19.3 n.a.

Services 24.7 25.0 n.a.

Average share of income spent on food n.a. n.a. 50.4




Agro-food trade balance (USD million) 5 374 6 342 8 591

GAO (% change from previous year) 6.2 4.2 4.8




Average farm size (ha) 1.3 n.a. n.a.

Agricultural land (million ha) 193.3 n.a. n.a.

Arable land per capita (ha) 0.1 n.a. n.a.

Land sown to crops (million ha) 190.9 n.a. n.a.

70

8090

100

110

120

130

140

150

160

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-7

-5

-2

0

25

7

1012

151995=100 Annual rate of growth, %


0123456789

1011121314151617

USD billion



1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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Policy developments

Main policy objectives and instruments Food security remains the key agricultural policy objective and the main cause for

heavy involvement of the Indian government in regulating the agricultural sector. The

policy is intended to ensure adequate supplies of food staples at remunerative prices for

farmers, and to provide food at stable and affordable prices to consumers.

The broad policy guidelines and allocation of funds are set within a framework of five-year

plans. The current, Eleventh Five-Year Plan runs from 2007/08 to 2011/12. Its main theme is

“Towards Faster and More Inclusive Growth” with agricultural development being considered

as one of the critical areas to ensure the inclusiveness of growth. The central target is to

accelerate the growth of agricultural GDP to 4% per annum, representing an increase from the

disappointing average of 2.5% during the two preceding five-year plans. Within the National

Food Security Mission, the plan aims at increasing production of cereal and pulses by

20 million tonnes over a five-year period. Stronger growth is to be achieved through higher

yields underpinned by an expansion in irrigated land under the Bharat Nirman programme,

improved water management of existing irrigation schemes, support for research leading to

higher yields in rain-fed areas, diversification to higher value outputs such as fruits,

vegetables, flowers, herbs and spices, promotion of animal husbandry and fisheries, provision

of easier access to credit at affordable rates, and improvement of incentive structures and

functioning of markets (Planning Commission, 2008).

At the central level, the Ministry of Agriculture formulates and implements the policy

within the five year plan system. The Ministry and other central government institutions

are responsible for key decisions such as those relating to research and development,

facilitating infrastructure and investment, credit and trade. However, under the

Constitution, agricultural policy implementation is in the purview of the individual states,

therefore they may make adjustments in line with their needs (WTO, 2007).

The regulatory framework governing agriculture has been liberalised since the early 1990s,

but less than for other sectors of the economy. This framework includes a wide range of

instruments and laws. Two notable examples are the Essential Commodities Act of 1955 (ECA),

which gives the authority to the central and state governments to regulate and control

production, distribution and pricing of commodities listed as essential for consumers, and the

Agricultural Produce Marketing Committee Act (APMC), which regulates the establishment of

markets and the marketing of agricultural produce at the state level to ensure that all trade

between farmers and initial buyers goes through a regulated market. Other instruments for

market intervention include minimum support prices on essential commodities (26 as of

September 2008), minimum intervention prices for some other crops, buffer stocks and the

Targeted Public Distribution System (TPDS) that distributes subsidised food to India’s poor.

Domestic prices are also affected by high import tariffs on agricultural products (40.8% on

average), ad hoc export bans on some products and export subsidies on some others. Budgetary

support is provided primarily for inputs (fertilisers, water, electricity and seeds) and

agricultural infrastructure (irrigation, water supply, roads and electrification).

In 2007, a National Policy for Farmers (NPF) was announced aiming at a holistic approach

to the development of the farm sector. Compared to the National Agriculture Policy (NAP)

approved by the government in 2000, the NPF suggests a greater focus on the economic

well-being of farmers and rural development, rather than just on agricultural production.

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Emphasis is to be given to empowering farmers with access to assets, providing farmers with

a wide range of support services and developing appropriate price policy and risk management

measures. The Agriculture Co-ordination Committee under the chairmanship of the Prime

Minister is to oversee and co-ordinate the implementation of this programme (MoA, 2007).

Box 5.1. Food price inflation in India

Consumer price inflation in India as measured by the Consumer Price Index for IndustrialWorkers (CPI-IW) increased from 5.5% year on year in December 2007 to 9.8% inSeptember 2008. Higher food prices, accounting for 46.2% of the consumer price index,together with oil and other commodity prices are considered as major factors contributing tothe accelerated rate of inflation, but they emerged within a wider context of rising wages andhigh budget deficit at above 4% of GDP in 2008. As India’s domestic markets for key agriculturalcommodities have been largely isolated from price movements on international markets,domestic factors appear to be driving the food price increases in 2007 and 2008. In particular,in recent years growth has slowed in agricultural production, including stagnation or even fallsin wheat production in 2003-06. Moreover, food grain stocks have fallen below the bufferrequirements during the period from mid-2005 to early 2008.

While the Reserve Bank of India (RBI) reacted through several increases in repo rate (therate at which RBI lends funds to the banks) to suck out liquidity and curb price rises, thegovernment adopted a series of measures targeting food prices and agriculture. These can besummarised as follows (detailed descriptions can be found in other sections of this chapter):

● Incentives for grain imports: cuts and then zero import duties on wheat, rice, maize andpulses to improve grain stocks and relieve price pressures.

● Disincentives for grain exports: export bans on wheat, corn and pulses; an export banthen replaced by a minimum export price and then again by an export ban on non-basmati rice; minimum export price combined with an export duty on basmati rice.

● Ban on futures trading in wheat, rice, soya oil, rubber, two varieties of lentils, potato, andchickpea to avoid speculative transactions.

● Increase in the Minimum Support Prices (MSPs) for almost all eligible commodities.

● Stable Central Issue Prices (CIPs) for consumers.

● Strong increase in input subsidies, in particular for fertilisers.

● Strong increase in food subsidies to cover the difference between growing MSPs andstable CIPs.

These measures led to the isolation of domestic wholesale prices from internationalprice movements for agricultural commodities, reflecting India’s long-standing approachof adopting countercyclical policies (Figure 5.5). In particular, increases in domestic pricesfor wheat and rice were just a tiny fraction of changes on international markets.Substantial increases in minimum support prices for the 2008/09 season coincided with afall in prices on international markets and may prolong inflationary pressures in India,while export bans may undermine confidence of traditional India’s grain importers. Theincrease in fertiliser subsidies and rapidly growing food subsidies will have substantialbudgetary costs. Robust domestic agricultural output in 2008, rebuilt buffer stocks ofgrains, a fall in international prices for agricultural commodities and political pressurefrom exporters, encouraged the Indian government to ease some disincentives for exportsat the end of the year. For example, partial relaxation of the ban on non-basmati exportswas announced and edible oils exports in packs were allowed in November 2008.

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India implements various mechanisms to stabilise prices for agricultural

commodities. The most important ones are: the Minimum Support Price (MSP) for key

products, the Market Intervention Price (MIP) and Buffer Stocks Operations. In addition, at

the state level, there are regulations which limit free movement of grains across state

borders, so called “zoning”.

Under the Price Support Scheme (PSS), the Commission for Agricultural Costs &

Prices (CACP) recommends the Minimum Support Prices, currently for 26 commodities:

paddy, maize, coarse cereals (jowar and bajra), pulses (arhar, moong, urad, gram, and

masur), cotton, groundnuts, sesamum, niger seed, wheat, barley, rapeseed/mustard,

safflower, sunflower seed, soybean, toria, copra, de-husked coconut (newly added), jute,

sugar cane and tobacco. The Commission considers the cost of production including the

Box 5.1. Food price inflation in India (cont.)

Figure 5.5. India’s monthly wholesale prices of wheat, rice, maize and soybeans compared with world market prices, 2007-08

December 2006 = 100

Domestic prices refer to the national wholesale prices; for international prices: wheat is US HRW price; whiterice is Thai 100% B second grade, f.o.b. Bangkok; Corn (US), no. 2, yellow, f.o.b. US Gulf ports; soybeans (US),c.i.f. Rotterdam.

Source: http://eaindustry.nic.in/ and World Bank Commodity Price Data, September 2008.statLink 2 http://dx.doi.org/10.1787/530888187888

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cost of paid-out inputs, imputed value of family labour and land rental. The MSPs are

normally announced before the commencement of sowing operations of the particular

crop, and have usually been remunerative and significantly higher than the cost. The MSP,

by definition, becomes the floor price and farmers are assured of getting that price.

Intervention takes place when market prices of the relevant commodities fall below the

MSP, resulting in procurement at the MSP by the Food Corporation of India (FCI) for cereals,

the National Agricultural Cooperative and Marketing Federation of India (NAFED) for

pulses and oilseeds, the Cotton Corporation of India and NAFED for cotton, and the Jute

Corporation of India for jute.

The MSPs were revised substantially in 2007/08, with the MSP for wheat price rising by

one-third compared to the preceding season. For other commodities, the increase ranged

from 0-1% (tobacco and sugar cane) to 15% (barley). Newly announced prices for the 2008/09

season suggest much more significant changes (Table 5.2). For some commodities the

increase ranges between 29% and 94%. Only for copra and sugar cane, the MSPs are to

remain at similar levels to the previous season.

For commodities not covered by the MSPs, the government arranges for market

intervention upon specific request from the states for a specific quantity at a mutually

agreed Market Intervention Price (MIP). The losses, if any, are borne by the national

government and the states on a 50:50 basis. Horticultural and other perishable agricultural

commodities can be procured through this arrangement. Interventions are carried out by

NAFED and agencies designated by the state governments concerned.

Buffer stocks of food grains are under the responsibility of the FCI. Seasonally-

adjusted buffer stock requirements (buffer norms) constitute the basis for FCI action to

accelerate procurement, turn to imports or allow for food grain exports. Between mid-2005

and early 2008, actual food grain stocks were consistently below buffer norms, requiring

India to import significant volumes of wheat, particularly in 2006. In January 2008, buffer

norms were at 20 million tonnes, which was 9.1% of India’s food grain production in 2007/08,

and actual stocks were at 19.2 million tonnes, including 7.7 million tonnes of wheat and

11.5 million tonnes of rice (GOI, 2008). As India’s procurement of rice and wheat in 2008

exceeded the buffer norms, India will be in a fairly comfortable position with respect to

availability of grains for the TPDS and even for resuming grain exports in 2008/09. However,

at the end of 2008, domestic prices for grains started to exceed falling international prices,

Table 5.2. Minimum support prices in India for selected commodities, 2005-09Per tonne

1. An additional incentive bonus of INR 500 (USD 11) per tonne was payable above the MSP.2. An additional incentive bonus of INR 1 000 (USD 23) per tonne was payable above the MSP.

Source: Ministry of Agriculture (MoA): http://agricoop.nic.in/ [accessed on 8 October 2008]; Press Information Bureau,Press Releases 29 January 2009.


Commodity2005-06 2006-07 2007-08 2008-09

INR USD INR USD INR USD INR USD

Paddy (common) 5 700 128 5 800 134 6 450 155 8 500 198

Maize 5 400 121 5 400 125 6 200 149 8 400 195

Cotton (F-414/H-777/J34) 17 600 394 17 700 408 18 000 432 25 000 581

Wheat 6 5001 145 7 5002 173 10 000 240 10 800 252

Barley 5 500 123 5 650 130 6 500 156 6 800 158

Sugar cane 795 18 802.5 19 811.8 19 811.8 19

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reducing the prospect of exports. This will place additional pressure on the government

procurement system which is obliged to purchase grains at high MSPs.

India’s marketing policies for grains used to be based on the “zoning” provision,

whereby sale of food grains outside a zone was prohibited. The purpose was to “bottle up”

the grain surplus regions and facilitate state purchase of grains at a previously announced

procurement price. In effect, zoning led to “balkanisation” of the domestic grain market.

Recent reforms include the abolition of zones, partly through the adoption of the

Agricultural Produce Marketing Committee Act (APMC) of 2003.

The Ministry of Agriculture circulated a model APMC Act to states and suggested

amendments to the State APMC Acts so as to promote investment in marketing

infrastructure, motivate the corporate sector to undertake direct marketing and to facilitate

a nationally-integrated market. The Ministry requested that states complete the process of

modification of the state-level APMC Acts by 2007/08. However, progress made by states in

reforming their agricultural markets varies considerably. For instance, in Maharashtra and

Uttar Pradesh, channelling of produce through the regulated markets is still strictly enforced

and the number of products for which prior permission has to be sought before they can be

traded across states (so called notified commodities) is still large at 593 in Maharashtra and

347 in Uttar Pradesh. By contrast, in Tamil Nadu, except for 15 commodities, there is no

restriction on where and to whom farmers can sell their products.

In addition, in 2006, the Food and Safety Standards Act was approved by parliament,

rationalising the complex and overlapping web of regulations governing the processing of

food products. The Department of Food and Public Distribution is also promoting the

development of a negotiable warehouse receipt system to increase liquidity in rural areas.

To provide the legal framework for the warehouse receipt system, the Warehousing

(Development and Regulation) Bill has been enacted in 2008. The Forward Contracts

(Regulation) Amendment Bill was also submitted to parliament in 2006 but not approved as

of October 2008. Its main objective is to permit and regulate financial instruments that

would enable the buyers and sellers of commodities to effectively manage the risks of price

fluctuation.

Input subsidies

Input subsidies for farmers are provided primarily through subsidising fertilisers,

electricity, irrigation water and, occasionally, seeds. In addition, commercial banks,

co-operatives and regional banks are required to provide credit to agricultural producers for

input purchases at interest rates below the market rate.

Fertiliser subsidies are usually the most important component of budgetary support

for agricultural inputs. To encourage the use of fertilisers and to make them available to

farmers at affordable prices, prices at which fertilisers are sold to farmers are controlled by

the government. As they are lower than the cost of production, the difference is

compensated to fertiliser producers. While there were plans to disburse the fertiliser

subsidy directly to farmers, this has not been implemented due to practical difficulties.

Under the so-called New Pricing Scheme, flat rates of subsidy are determined for various

groups of fertiliser manufacturers, depending on production methods and age of

manufacturing plants. An extra freight subsidy is paid to cover the transportation costs.

Some amounts are also budgeted each year to cover the difference between the price of

imported urea and retails prices (WTO, 2007). In 2005/06, fertiliser subsidies amounted to

USD 4.1 billion and accounted for 35% of the total allocation for agricultural input

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subsidies. Within an overall package to support agriculture in the 2008/09 budget, the

amount foreseen for fertiliser subsidies increased to INR 309.9 billion (USD 7.8 billion), but

in view of some policy announcements, the actual amount spent might be significantly

larger at perhaps INR 1 250 billion (USD 27.5 billion), which would be INR 200 billion more

than India’s defence budget (GAIN-IN8111).

Electricity subsidies are paid from state budgets to the providers of electricity, and

result from the difference in the cost of electricity provision and fixed charges paid by

farmers. In most states these fixed charges are just lump sums based on the declared horse

power of irrigation pumps. As these subsidised charges do not reflect the actual cost, they

encourage overuse of electricity and lead to overexploitation of ground water. In 2005/06,

the electricity subsidy amounted to USD 4.5 billion and accounted for 38% of the input

subsidies in that period. However, it then increased to USD 7.1 billion in 2007/08. The

amount foreseen for 2008/09 is at around USD 7.6 billion.

Irrigation water subsidies are the third largest and amounted to USD 3.2 billion in

2005/06, 27% of total amount allocated for input subsidies. The subsidy covers losses

incurred by the government irrigation systems resulting from the excess of operating costs

over the gross revenue.

India’s institutional agricultural credit system includes an extensive network of

co-operative, public sector and commercial banks, but still a large percentage of farmers,

most often small landholders, remain dependent on traditional moneylenders or other

non-institutional sources of credit. According to government data, 49% of farm households

are indebted, with 58% of outstanding loans sourced from institutional channels (including

government) and 42% from private informal moneylenders. While there is a wide range of

reasons for the so called agrarian distress, high debt levels are among the most important

factors leading to large numbers of farmers’ suicides in recent years.

To improve credit flows to the agriculture sector, the government initiated a number of

policy measures. One of them was the Kisan (Farmer) Credit Card (KCC) Scheme launched

in 1998/99. Under this scheme, credit cards were distributed to about 70.8 million farmers

by November 2007. The scheme is currently being extended to include a wider scope of

credits and clients.

In 2006, the government announced a package for the revival of the Short-Term RuralCo-operative Credit Structure involving financial assistance of INR 135 billion (USD

3.23 billion). The National Bank for Agriculture and Rural Development (NABARD) has been

designated as the implementing agency for the purpose. States are required to sign a

Memorandum of Understanding with NABARD committing to implement the legal,

institutional and other reforms as envisaged in the revival package. In the crop season

2006/07, farmers were eligible for short-term crop loans up to a principal amount of

INR 300 000 (USD 7 150) at the preferential interest rate of 7%. The government provided an

interest subsidy of 2% to NABARD and other banks. This policy was continued in 2007/08

and the amount of INR 16.8 billion (USD 400 million) was allocated for this purpose from

the 2007/08 budget. In the 2008/09 fiscal year, the subsidy amount is to remain roughly at

the previous year level and the preferential interest rate is to remain at 7% per annum. The

target for the agricultural credit disbursement through formal agencies (banks and co-

operative credit agencies) has been set at INR 2.8 trillion (USD 70.1 billion) for 2008/09.

To address the issue of farm indebtedness, at the end of February 2008, Finance

Minister announced a massive Scheme of Debt Waiver and Debt Relief for farmers. The

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budgetary cost was initially foreseen at INR 600 billion (USD 14.3 billion). In line with the

announced scheme, all loans disbursed by scheduled commercial banks, regional rural

banks, and co-operative credit institutions to small and marginal farmers (farms below two

hectares) up to 31 March 2007, which were overdue as of 31 December 2007 and remained

unpaid as of 29 February 2008, were to be completely waived. This measure was to cost the

government INR 500 billion. For medium and large farmers (farms above two hectares),

there would be a one-time settlement programme for all loans that were overdue for the

above period by paying 75% of the amount, thus providing a 25% rebate. This would cost

the exchequer another INR 100 billion. However, in May 2008, the government further

expanded the coverage of the scheme to include plantations, horticulture, dairy and

poultry farming, as well as other agricultural loans such as taken under the Kisan Credit

Card scheme and within self-help and joint-liability groups. Therefore, the original total of

INR 600 billion was to be increased to INR 716 billion (USD 17 billion).

The implementation of the debt-relief scheme was planned to be completed by 30 June

2008 and all bank branches would be given instructions to prepare a list of beneficiaries for

display at their respective premises. The central government would take over the debts and

reimburse the banks. The Finance Minister assured bankers that the government would take

care of banks’ liquidity. Farmers benefiting from the relief would be entitled to new agricultural

loans from banks in accordance with normal rules. It is expected that the scheme would cover

institutional debts of all small and marginal farmers, and 60%-65% of large farmers. As the

loan waiver is confined only to loans taken from formal institutional channels, the scheme

does not address the issue of farmers' indebtedness to informal lenders.

The loan waiver scheme launched a debate in India, with many observers concluding

that it may end up crippling the agricultural credit system, as happened with a similar loan

waiver of 1990. The co-operative credit sector has still not fully recovered from that move

and even the commercial banking sector became wary of disbursing crop loans for a long

time after the previous waiver. It is argued that the current scheme will destroy the

discipline of any functioning credit system. Moreover, the scheme may end up

compounding, rather than alleviating, the woes of defaulters and heavily indebted

farmers, by making them eligible for fresh credit despite their being unable to earn enough

to repay their existing loans (Kaur, 2008).

There are a number of commodity-specific programmes within which the government

provides support for inputs and general services. The most important one is the NationalHorticultural Mission, launched in 2005/06, to stimulate horticultural production through

research, adoption of improved technologies, improved post harvest management and

marketing, export promotion, and adding value through processing. In 2008/09, the

programme is to cover 340 districts in 18 states and two Union Territories at a budget cost

of INR 11 billion (USD 262 million).

The National Agricultural Insurance Scheme (NAIS) covers small-scale crop

producing farmers who can benefit from a 10% subsidy on their premium payments. The

total amount of subsidy foreseen for this scheme in the 2008/09 budget is INR 6.4 billion

(USD 144 million). In addition, the Weather-Based Crop Insurance Scheme (WBCIS) has

been implemented in selected areas of Karnataka on a pilot basis. WBCIS intends to

provide insurance protection to farmers against adverse incidents, such as deficit or excess

rainfall. It has the advantage of settling claims within the shortest possible time. The

WBCIS is based on actuarial premium rates, but to make the scheme attractive, the

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premium actually charged to farmers has been restricted to “at par” with NAIS. WBCIS is

planned to be implemented in 2008/09 on a larger scale in selected areas of five states and

the total subsidy is planned at INR 0.5 billion (USD 12 million).

Consumer measures

The distribution of subsidised food to poor consumers is at the core of India’s food

security system. It is operated through the Indian Targeted Public DistributionSystem (TPDS) and managed by the Food Corporation of India (FCI), which is also

responsible for procurement and buffer stocks (see above). With a network of around

478 000 Fair Price Shops, distributing food to about 160 million families, the TPDS is the

largest distribution network of its kind in the world. Major commodities distributed

include wheat, rice, coarse grains, sugar and kerosene.

The key instruments applied by the FCI for food management are the Minimum

Support Prices (MSPs) for procurement and the Central Issue Prices (CIPs), the rates at

which the FCI disperses food grains to states and union territories for distribution under

TPDS. The difference between the economic cost of procured commodities (in addition to

the MSP, this includes state taxes, levies, market fees, commissions, transportation and

storage charges) and the issue price is reimbursed to FCI. The level of subsidised prices at

which wheat and rice are sold to consumers is differentiated depending on the income of

the family: highest for families above the poverty line (APL), lower for families below the

poverty line (BPL) and lowest for the poorest-of-the-poor (antyodaya ann yojana – AAY). As

the MSPs have been raised (see above) and the CIPs have been kept unchanged since 2002,

the cost of food subsidies has increased from INR 240 billion (USD 5.8 billion) in 2006/07 to

INR 315 billion (USD 7.6 billion) in 2007/08, and to a budgeted INR 327 billion

(USD 8.2 billion) in 2008/09 (GAIN-IN8020, 2008).

One additional way of supporting consumers is the relatively low VAT rate on food,

typically at 4% as compared to 12.5% for other commodities. Moreover, essential

commodities, such as grains, are exempt from VAT.

Infrastructure

To make India’s growth more inclusive and equitable, the improvement of rural

infrastructure has been given a high priority. The most important programme in this

respect is Bharat Nirman, which is a time-bound business plan for action in rural

infrastructure over the four year period (2005-09). The total cost of INR 1 740 billion

(USD 41 billion) is to be covered by the central government, states, external aid and market

borrowing. Specific targets include:

● Irrigation – to create 10 million hectares of additional irrigation capacity.

● Rural roads – to connect all remaining habitations with population above 1 000 (500 in

hilly and tribal areas) with all weather roads.

● Rural housing – to construct 6 million houses for rural poor.

● Rural drinking water – to provide potable water to all uncovered habitations and to

provide safe water to all water-quality-affected habitations.

● Rural electrification – to provide electricity to all un-electrified villages and to connect

23 million households below the poverty line.

● Rural telephony – to connect all remaining villages with a public telephone system.

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In the first two years of implementation (2005-07), performance was rather mixed,

with good progress made toward meeting housing targets but an important shortfall

was noted in assisting the water-quality-affected habitations (Planning Commission,

2008).

There are several programmes focused on the provision of water for agriculture, some

of them components of Bharat Nirman. The most important one is the AcceleratedIrrigation Benefit Programme with an allocation of INR 200 billion (USD 4.8 billion) in the

2008/09 budget. Within the Micro Irrigation Programme 0.4 million hectares is to be

covered and an outlay of INR 5 billion (USD 119 million) is foreseen in the 2008/09 budget.

A Rain Area Development Programme aims at developing agriculture in the non-irrigated

areas with a budgetary allocation of INR 3.5 billion (USD 83 million).

In addition, India implements a number of so called flagship programmes targeting

rural areas. Among them, the National Rural Employment Guarantee Programme (NREGP)is the most important. NREGS, launched in 2005, guarantees 100 days of employment in a

financial year to any rural household whose adult members are willing to do unskilled

manual work. The programme has successively been expanded, and in 2008/09 is to cover

all 596 districts in the country compared to 330 in 2007/08. The financial outlay budgeted

for 2008/09 is INR 160 billion (USD 3.7 billion).

Land policies

Indian agriculture is dominated by a large number of small-scale farms that are

predominantly occupied by their owners. The number of farms continues to increase due

to the fast growing population in the country, limited possibilities to move out of

agriculture, and the law of inheritance under which all sons and daughters are equally

entitled to a share in the ancestral property. Thus even large agricultural estates get

divided and sub-divided with every generation. In addition, existing legislation imposes

ceilings on land holdings. They are differentiated across states, and range between 10 and

18 hectares for irrigated land with two crops, 10 and 30 hectares for irrigated land with one

crop, and 15 and 70 hectares for dry land. Ceilings are of two kinds: for existing holdings,

land above the limit is declared surplus and taken over by government on payment of

compensation; for future acquisitions, the upper limit constraints the amount of land that

an individual or a family may acquire with a view to enlarging existing holdings. The

surplus land is distributed among small farmers, tenants, land labourers or handed over to

village committees or co-operative farming societies.

Within this framework, the average size of farm holdings declined from 1.4 hectares in

1995-96 to 1.3 hectares in 2000/01 (the latest available data), and the average ranged from

7.3 hectares in Nagaland to just 0.2 hectares in Kerala. Moreover, while the share of land

operated by so called marginal farms (below 1 hectare) and small farms (1-2 hectares) tended

to increase, the share of land operated by larger farms (above 10 hectares) tended to decline.

These trends clearly indicate that fragmentation of the land use pattern in India is progressing.

Although marginal and small holdings up to 4 hectares account for more than 90% of

the total number of holdings, the area operated by them is about 60% of the total. This

underlines the fact that the bulk of the peasantry subsists on marginal holdings, and

unless these marginal farmers are provided with alternative non-agricultural employment

or are employed in medium and large farms, the chances of addressing poverty in rural

India will remain bleak.

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As male-dominated outmigration from rural areas and feminisation of agriculture

continue, there is a need for further land reforms to make tenancy legal and to give well

defined rights to tenants and to women farmers. Measures to facilitate the leasing of land

for cultivation could help to prevent cultivated land from turning fallow due to migration

of owners to urban areas. The lack of recognised tenancy rights makes it difficult for de facto

tenants to get credit from formal sources and discourages them from investing in the land.

Similarly, a woman without property title is unable to get credit when male family

members are away.

Over the past few years, the policy of promoting Special Economic Zones (SEZs) has

been strongly supported by the government. The zones are expected to give a strong

push to exports, employment and investment. However, their creation raised the issues

of displacement of farmers due to land acquisition moves and losses of fertile

agricultural land to development. Concerns over land acquisition and displacement of

farmers led to extreme violence at Nandigram (a village in West Bengal) in March 2007.

Some consider that monetary compensation for the land is not a sufficient solution and

that more general social impacts must also be taken into account and addressed

adequately.

Biofuels

India has spent about INR 410 million (USD 9.5 million) on the research and

development of alternative fuels during the last three years. The Ministry of New and

Renewable Energy has been given the responsibility for preparing the national policy onbiofuels and setting up a National Biofuel Development Board. The draft policy aims at

promoting the cultivation, production and use of biofuels to partially replace petrol and

diesel for transport. The general government policy is to base the biofuel production on

waste lands and not divert land from the traditional cultivation for biofuels. India has

around 35 million hectares of waste land that can be used for the production of biofuel

feedstock.


Import measures

While India’s simple average applied MFN tariff has halved in recent years, falling

from 32.3% in 2001/02 to 15.8% in 2006/07, the simple applied tariff on agricultural products

remained unchanged and was 40.8% in 2006/07. The average WTO bound rate on

agricultural products, 117.2% in 2006/07, is almost three times higher than the average

applied rate, thus providing the government with a considerable scope to change tariffs

and, hence, creating unpredictability for traders. With the exception of almonds, tariffs on

agricultural products are all ad valorem. However, for some commodities India applies

“reference prices” fixed by authorities to calculate customs duty applicable on imports

instead of the price quoted by the importer. This applies, inter alia, to palm oil and crude

soybean oil (WTO, 2007).

Applied tariff rates range from 0% to 182%, with above average rates for beverages,

spirits and vinegar, miscellaneous edible preparations, coffee and tea, animal or vegetable

fats and cereals. While some of these rates are fixed at bound levels, for the majority of

tariffs there is a considerable gap between the applied and bound rates, ranging from 10%

to 300%.

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While tariffs are the main instrument of India’s trade policy, other measures affecting

agro-food imports are also applied (WTO, 2007):

● Prohibitions: imports of beef and its products, poultry from countries reporting

outbreaks of avian influenza, but also some other less important products are prohibited

for reasons of public health and safety or on moral or religious grounds.

● Tariff rate quotas: bound tariff rate quotas are maintained on milk powder, maize,

sunflower seed and safflower oil, and rape, colza or mustard oil (14 tariff lines at the

HS 8-digit level). In addition, tariff rate quotas are applied on imports of selected

products, e.g. on tea and pepper, under the free-trade agreement with Sri Lanka.

● State trading: continues to be used for imports of cereals (wheat, rice, maize, rye, oats,

and coarse grains), copra and crude coconut oil.

● Monitoring: imports of a number of agricultural products considered to be sensitive,

including edible oils, cotton, silk, milk and milk products, cereals, fruit and vegetables,

spices, tea, coffee and alcoholic beverages are monitored by the government. Depending

on the market situation, the government adjusts applied tariff rates within the ranges of

respective bound rates.

Within this range of instruments, import requirements are frequently modified to

ensure sufficient domestic supply of basic foodstuffs, particularly for grains. The most

recent examples of such changes, mostly triggered by the recent food price hikes on global

markets, are as follows (GAIN-IN8015, 2008 and GAIN-IN8045, 2008):

● Wheat: in June 2006 the import duty was reduced from 50% to 5%, and subsequently to

0% from September 2006 until December 2007. In addition, at the end of 2007, the

government permitted duty-free imports of wheat flour until 31 March 2009. Under the

Essential Commodities Act, the government has also permitted states to impose wheat

stock limits on the private trade and has banned futures trading to check wheat prices.

● Rice: the import duty was abolished from 21 March 2008 through 31 March 2009.

● Maize: the import duty was abolished in January 2007 until December 2007 and the tariff

rate quota (TRQ) restrictions were removed. Previously, corn imports were subject to a

TRQ, under which up to 0.5 million tonnes were permitted to be imported at a 15% tariff,

and quantities above this level were subject to a 50% duty.

● Pulses: in June 2006, the government exempted pulses from the applicable 10% import

duty through end March 2009. The government also authorised government agencies/

trading companies to import 1.5 million tonnes of pulses through December 2007.

Imports by these agencies would qualify for a subsidy of up to 15%.

Export measures

India’s agro-food export policy is balancing between an objective of stimulating

farmers’ income through encouraging exports in particular of horticultural products and a

food security objective leading to ad hoc restrictions on exports of commodities regarded

as essential for domestic consumers.

With the primary objective of boosting agricultural exports, the government of India

announced in 2001 a policy of setting up of Agri-Export Zones (AEZs) across the country. The

objective was to utilise various support schemes in a co-ordinated manner, selecting

particular products for the purpose of developing and sourcing the raw materials in a

specified area, and then linking this with their processing and packaging for export. The

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zones receive support from the central and state governments as well as from various

governmental agencies, in particular for the development of infrastructure like storage,

transport, processing and value addition facilities, but also in the form of research and

development, extension services and inputs. So far, 60 such zones have been established

across 20 states. They are monitored by the Agricultural and Processed Food Products Exports

Development Authority (APEDA). However, of the total investment of INR 17.18 billion

(USD 390 million) envisaged over 2002-07, just 64% has been realised. Export performance has

been better, as the total exports from the zones amounted to INR 106.9 billion (USD 2.4 billion)

by March 2008, which was 90% of the value envisaged for 2002-07 (APEDA, 2008).

The Vishesh Krishi Upaj Yojana (special agricultural production scheme), introduced

in 2004, promotes exports of fruits, vegetables, flowers, minor forest produce, dairy, poultry

and related value-added products produced domestically. Under the scheme, exporters of

the eligible products are entitled to an import duty credit equivalent to 5% of the f.o.b. value

of exports in the previous year beginning 1 April 2004, but the government reserves the

right to remove any of the products from this scheme. In addition, under the Advance

Licence scheme, duty-free import of agricultural inputs required for export production are

allowed with an obligation to export associated agricultural products.

India last notified its export subsidies to the WTO in March 2002 for the period 1996/97 -

2000/01. Since then, no official notification was submitted to the WTO (WTO, 2007).

Nevertheless, products such as cereals, sugar or cotton, procured at Minimum Support

Prices, are occasionally supported by export incentives to cover the cost of handling,

processing and internal transportation. For example, in April 2007, the central government

announced an export incentive of INR 1 350 (USD 34.2) per tonne for sugar mills in the

coastal states and INR 1 450 (USD 36.7) per tonne for non-coastal states. The incentive was

a transport subsidy (both internal and ocean freight) initially for sugar exported from

19 April 2007 to 18 April 2008, but then the period was extended until 30 September 2008.

The sugar for export was also exempted from local taxes and fees imposed on domestic

sugar which total INR 950 (USD 24) per tonne. In addition, sugar exporters were eligible for

a duty drawback benefit on the export value (at 5% of export value for white sugar and 4%

for raw sugar) for imports of goods under an open general license. On top of support

provided by the central government, the government of the coastal Maharashtra state

provided an extra subsidy of INR 1 000 (USD 25.5) per tonne of sugar exported by sugar

mills located in the state in 2006/07. Then, the subsidy was extended for the 2007/08 season

(GAIN-IN8034, 2008).

Since the beginning of the 1990s, India has gradually removed prohibitions, licensing,and other restrictions on exports. However, to balance domestic supply and demand for

commodities considered as crucial for food security and to stabilise domestic prices,

notifications are made periodically to restrict exports or lift export restrictions on selected

agricultural commodities (WTO, 2007). While in 2006, such cases were relatively infrequent,

they grew significantly in 2007-08 with the rise of food prices on international markets and

with growing inflationary pressures on the domestic market. Export restrictions concerned

in particular grains and pulses (GAIN-IN8045):

● Wheat: in February 2007, the government banned exports of wheat and wheat products

until 31 December 2007, which was then extended indefinitely.

● Non-basmati rice: in October 2007, the government banned exports of all non-basmati

rice. However, responding to demands from rice exporters and some governments of

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major rice exporting states in India, the government decided to establish a minimumexport price (MEP) of USD 425 per tonne on 31 October 2007, which would permit

exports of high quality rice, not required for distribution through the public distribution

system. However, at the end of December 2007, the government increased the price to

USD 500 (INR 20 000) per tonne and further to USD 650 per tonne on 5 March, to

USD 1 000 per tonne on 27 March 2008, and completely banned exports as from 1 April

2008. The ban was partly relaxed in November 2008, but only for limited amounts from

two states.

● Basmati rice: to limit exports, the MEP was gradually increased from USD 900 per tonne

on 5 March 2008, to USD 1 100 per tonne on 27 March 2008, and to USD 1 200 per tonne

on 1 April 2008. At the end of April 2008, an export duty of USD 200 per tonne was

imposed on top of the MEP. In January 2009 the tax was abolished and MEP reduced to

USD 1 100 per tonne.

● Corn: export ban effective as from 3 July 2008 to 15 October 2008.

● Pulses: export ban imposed in June 2006, originally in force up to end of March 2008, but

then extended again for 12 months.

In addition to temporary restrictions, India prohibits exports of certain agricultural

products for health, environmental, and religious reasons. For example, for social and

religious reasons such a prohibition is applied for exports of beef and offal of cows, oxen

and calves. In turn, export licensing is applied for live animals and some animal products,

seeds, seaweed and other algae, residues and waste from food industries, as well as pure

races of silk worm and silkworm seeds. State trading is applied for onions and gum karaya.

India’s export of sugar is subject to tariff rate quotas applied by the United States and the

EU, which are implemented through a sugar producer’s co-operative called the Indian

Sugar Exim Corporation Limited. An export tax applied to various products including

coffee, spices, tobacco and other agricultural commodities, usually at the rate of 0.5%, was

repealed by the Cess Laws (Repealing and Amending) Act, 2005 enacted in 2006 (WTO,

2007).

Trade agreements

India attaches great importance to the multilateral trading system, but is also moving

to promote bilateral and regional trade agreements. Its first real free trade agreement (FTA)

was signed in 2000 with its neighbour Sri Lanka. Since then, the number of FTAs signed by

India increased substantially, mostly within the region (South Asian Free Trade Area –

SAFTA; Asia Pacific Trade Agreement – APTA) or with selected Asian countries (in addition

to Sri Lanka, also with Bangladesh, Nepal, Singapore and Thailand). Most recently,

negotiations between India and the Association of South East Asian Nations (ASEAN) have

been completed with the objective to sign a comprehensive free trade treaty in

December 2008. Negotiations for a free trade agreement between India and the European

Union are on track and are expected to be completed in 2009.

Both the coverage and tariff concessions provided by India to its agricultural sector

within these agreements are rather limited. In terms of coverage, India's offer ranges from

8.4% of its agricultural tariff lines (WTO definition of agriculture) for members of APTA to

92.5% in the case of the agreement with Sri Lanka. Tariff concessions are even smaller, as

the average preferential agricultural tariff ranges from 37.2% for SAFTA to 40.6% for APTA

compared to the MFN average at 40.8%. However, for Sri Lanka the average is significantly

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smaller at 7.6%, and for the least developed country members of the SAFTA (Bangladesh,

Bhutan, Maldives, and Nepal) the agricultural tariff is 30.0% (WTO, 2007).

Also under the India-ASEAN agreement, India’s negative list of agricultural

commodities for which no tariff concessions would be exchanged is long and includes

honey, cut flower, vegetables, coconut, cashew nut, most fruits, grains (wheat, maize, rice,

millet), peanuts, copra, soybeans, cotton, sunflower seed, castor oil, sesame seed, mustard

seed, beer, wine, whisky, rum, gin, vodka, tobacco and products, milk and milk products,

fish and fish products, poultry and poultry products, processed food, fruit juices and

natural rubber. Imports under this negative list would not exceed 5% of total bilateral

imports by India from any other ASEAN member country. Some preferences would

increase during the implementation period beginning 2009 until 2018. For example, India’s

import duty on palm oil would come down to 37.5% from the bound level of 80%; on refined

palm oil to 45% from the current 90% bound level; on black tea, pepper, and coffee to 40%

from the current 100% (GAIN-IN8105).

Bibliography

Anderson, K., M. Kurzweil, W. Martin, D. Sandri and E. Valenzuela (2008), “Methodology for MeasuringDistortions to Agricultural Incentives”, Agricultural Distortions Working Paper, No. 02, World Bank,Washington, DC, revised January.

APEDA (2008), www.apeda.com/apedawebsite/trade_promotion/Agri_Export_Zone.htm; http://dgft.delhi.nic.in/, accessed 1 October 2008.

GAIN-IN8015 (2008), India, Grain and Feed Annual, USDA FAS, 20 February.

GAIN-IN8020 (2008), India, Indian Budget IFY 2008-09: Agricultural Highlights, USDA FAS, 11 March.

GAIN-IN8034 (2008), India, Sugar Annual, USDA FAS, 11 April.

GAIN-IN8045 (2008), India, Grain and Feed, Quarterly Lock up Report: May, USDA FAS, 6 May.

GAIN-IN8105 (2008), India,Weekly Highlights & Hot Bites, #36, USDA FAS, 10 September.

GAIN-IN8111 (2008), India, Weekly Highlights & Hot Bites, #39, USDA FAS, 1 October.

Gopinath M. (2008), “Improving WTO Transparency: India’s Shadow Farm Support Notifications”,conference draft, IFPRI.

Government of India (GOI, 2008), Economic Survey 2007-08 and previous issues, Annual, Ministry ofFinance, New Delhi, at http://indiabudget.nic.in.

Kaur, S. (2008), “India’s Agricultural Policy Developments: 2006-08”, Report submitted to OECD.

Landes, M. (2008), “The Environment for Agricultural and Agribusiness Investment in India”, EconomicInformation Bulletin No. 37, USDA/ERS, July.

Ministry of Agriculture (2007), National Policy for Farmers 2007, Department of Agriculture andCooperation, Ministry of Agriculture, Government of India.

Ministry of Agriculture (2008), http://dacnet.nic.in/eands/msp/msp_5sept08.pdf/, accessed 5 October 2008.

Orden D., F. Cheng, H. Nguyen, U. Grote, M. Thomas, K. Mullen, D. Sun (2007), “Agricultural ProducerEstimates for Developing Countries. Measurement Issues and Evidence from India, Indonesia,China, and Vietnam”, Research Report 152, IFPRI.

Planning Commission (2008), Eleventh Five Year Plan 2007-12, Vol. III: Agriculture, Rural Development,Industry, Services, and Physical Infrastructure, Planning Commission, Government of India, OxfordUniversity Press, New Delhi.

Pursell, G., A. Gulati and K. Gupta (2007), “Distortions to Agricultural Incentives in India”, AgriculturalDistortions Working Paper, No. 34, December.

WB (2007), World Development Report 2008, “Agriculture for Development”, World Bank, Washington, DC.

WTO (2007), Trade Policy Review, Report by the Secretariat, India, 18 April.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 6

Russia


● Russia maintains high border protection for key agricultural imports and budgetary transfers to the agricultural sectorincreasing. With high economic growth boosting consumer incomes and raising government revenue, the government pursued an increasingly protective policy. The level of producer support rose in the current decade compared with the reclow which followed the 1998 financial crisis.

● The majority of producer support derives from border protection. The meat and sugar sectors in particular benefit from hprotection, which is tightening further. This support is borne by domestic consumers who buy products at prices abinternational levels. The export-oriented grain sector, in contrast, faces prices below world levels. Infrastructudeficiencies result in export opportunities being less than fully exploited and in turn depress local prices. Recently, grexports were also directly taxed as part of efforts to combat food price inflation.

● Around two-thirds of budgetary transfers to producers are directed to support the purchase of inputs and investments, largthrough lowering the interest rate for credit. The government’s broad goal is to boost domestic production and competitivenwith stronger emphasis being placed recently on support for improvements in farm technologies, animals and crops.

● A new and welcome feature is the attention to developing services for producers, such as consulting, extension, ainformation systems. Allocations for agricultural research, education, infrastructure and marketing increased slightlyreal terms.

● A stronger policy orientation to broader development issues is notable. Sustainable rural development and sustainable of agricultural land have been brought to the top of the policy agenda. Special government programmes have emergedtackle these issues. Large public investments are planned in rural electrification, gas networks and improvement of rusettlements. Rural dwellers have been given access to low-cost credit for housing construction and diversification of activ

● A longer-term policy framework emerged following the introduction of several large mid-term support programmes. Wthe federal government maintains a large role in the formulation of key policy objectives and in financing a core sesupport measures, regions have discretion in defining their specific sets of support measures, which are now also subjecmore clearly defined co-financing rules.

● The new policy programmes foresee a boost in public spending for the agricultural sector. However, there is a concern tthe allocation of public funds may become an objective on its own, over-riding an appropriate evaluation of the capacitpotential beneficiaries to absorb funds. Furthermore, much of these public funds are destined for lowering the interest rfor credit to producers and therefore expose the agricultural sector to higher levels of debt. The current financial crisis whhas spilt over into the real sector further increases the vulnerability of agriculture to debt risks.

● A strong reliance on state-controlled companies in implementation of some support policies, such as concessional credit aleasing, may impede the development of competitive services in these areas.

● Despite greater emphasis being given recently to the sector’s modernisation and sustainable development, inefficsupport, which distorts input and output prices, continues to dominate. A substantive re-allocation of resources towameasures improving the efficiency and competitiveness of the sector would in the longer-term provide superior gainsproducers, while at the same time benefiting consumers.

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A Programme for Development of Agriculture for 2008-12 was launched to succeed the

National Priority Project for Development of the Agro-Industrial Complex implemented in

2006-07. A significant increase in public spending for the sector is budgeted, as well as steps to

improve social conditions in rural areas. The meat sector benefited from a tightening of border

protection and additional assistance is foreseen. Ad hoc fuel subsidies were provided in

2006-08 to mitigate higher energy prices; in 2008 a five-year agreement on fertiliser price

restraint was reached with the fertiliser industry. WTO consultations continued but accession

is not imminent. In late 2007, measures to combat food price inflation were applied, including

export taxes on grains, a reduction of import tariffs on key foodstuffs and restraints on retail

food prices. Since mid-2008, cash flow problems in the agro-food sector have become a

preoccupation, prompting the government to contemplate specific relief measures.

● Support to producers (%PSE) was 14% in 2005-07,compared to 19% in 1995-97. After a substantial drop inthe late 1990s, the level of support increased, but remainswell below the OECD average of 26% (in 2005-07).

● The %PSE fell in 2007 as smaller quantities receivedprice support. There was also a considerablestrengthening in world prices reducing the gap betweenworld and domestic prices for import-competingproducts. Also, taxation on key export commoditiesincreased.

● The most distorting forms of support (based oncommodity output and variable input use) accountedfor almost 84% of the total PSE in 2005-07.

● Prices received by farmers were on average 10% abovethose observed on the world markets in 2005-07(producer NPC), compared to 9% in 1995-97. Farmreceipts in 2005-07 were 16% higher than if they hadbeen realised at world prices (producer NAC). Thisdifferential is somewhat smaller compared to 1995-97when it was 24%.

● Single Commodity Transfers (SCT) comprised 69% ofthe total PSE in 2005-07. Poultry, pigmeat, beef andsugar receive high support, with %SCTs for theseproducts ranging from 24% to 40%. At the same time,the grain sector faces negative transfers. The largevariation of %SCT across commodities reveals amisallocation of resources in the sector.

● As shown by the %CSE, agricultural policies placed animplicit tax on consumers of 15% in 2005-07, asignificant increase compared to 1995-97 when thistax was 7%.

● In 2005-07, support for general services to agriculture(%GSSE) comprised around 22% of the total support toagriculture (TSE). This share has risen in most recentyears.

● Total support to agriculture amounted to 1% of thecountry’s GDP in 2005-07 (%TSE) – a notable reductioncompared to 1995-97 when it was almost 3%.


Figure 6.1. Russia: PSE level and composition over time


Figure 6.2. Russia: Producer SCT by commodity, 2005-07


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% PSMPS and budgetary support, billion USD

Support based on commodity output (left scale)

Budgetary transfers (left scale)% Producer Support Estimate (right scale)

-40 -20 0 20 40 60SCT as % of PSE

Other commodities Maize

Other grainsWheat

EggsOilseeds

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Other SCTSCT as % of PSE

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Table 6.1. Russia: Estimates of support to agricultureRUB million

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for Russia are: wheat, maize, other grains (barley, rye and oats), sugar, oilseeds (sunflower), milk, beveal, pigmeat, poultry and eggs.Source: OECD, PSE/CSE Database, 2008.


1995-97 2005-07 2005 2006 20

Total value of production (at farm gate) 201 986 1 470 096 1 210 507 1 432 949 1 766of which share of MPS commodities (%) 63 66 66 64

Total value of consumption (at farm gate) 259 391 1 831 548 1 658 549 1 874 682 1 961Producer Support Estimate (PSE) 45 300 210 499 169 648 260 281 201

Support based on commodity output 22 512 147 429 114 131 211 917 116Market Price Support 17 775 140 963 108 746 206 277 107Payments based on output 4 737 6 467 5 385 5 640 8



with input constraints 0 0 0 0Based on on-farm services 159 710 333 1 181

with input constraints 0 0 0 0Payments based on current A/An/R/I,1 production required 438 4 410 2 681 4 965 5

Based on Receipts / Income 0 1 282 251 2 115 1Based on Area planted / Animal numbers 438 3 117 2 395 2 850 4




Miscellaneous payments 1 593 6 342 4 191 3 305 11Percentage PSE 19 14 13 18Producer NPC 1.09 1.10 1.09 1.16Producer NAC 1.24 1.16 1.15 1.21General Services Support Estimate (GSSE) 10 186 58 217 39 126 63 356 72

Research and development 329 3 400 2 792 3 259 4Agricultural schools 934 10 705 10 076 10 450 11Inspection services 827 16 477 10 410 17 560 21Infrastructure 1 639 14 216 13 945 12 111 16Marketing and promotion 124 475 581 376Public stockholding 0 1 308 268 1 067 2Miscellaneous 6 333 11 635 1 052 18 533 15


Transfers to producers from consumers –14 512 –136 596 –97 833 ––195 381 –116Other transfers from consumers –6 791 –121 625 –103 657 –123 672 –137Transfers to consumers from taxpayers 0 0 0 0Excess feed cost –2 307 –10 040 –10 177 –9 872 –10




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Policy context: Russia’s agriculture at a glance

Agriculture contributed around 5% to GDP and absorbed 10% of total employment in 2007.

Russia is a large agro-food importer, with agro-food imports taking up almost 14% of total

imports. The sector’s output is steadily recovering after a deep fall in the 1990s. The farm

structure is dual with large-scale farms existing along with small units producing mostly for

own consumption. Large farms (“agricultural organisations”) provided 43% of total agricultural

output in 2007, with the remaining shares coming from small family-type farms (7%) and tiny

household plots (50%). Rural areas account for slightly over one-quarter of the population, and

many of them suffer social decline and depopulation. On average, 28% of household consumer

expenditure was spent on food in 2007.

Figure 6.3. Russia: Evolution and annuchanges of agricultural output, 1995-20


Figure 6.4. Russia: Agro-food trade,1996-2007


Table 6.2. Russia: Basic economic and agricultural indicators, 2005-07

n.a.: not available.1. As of 1 July, 2006. Based on 2006 Russian Agricultural Census.


Source: FSSS, Federal State Statistics Service of the Russian Federation,2008; IMF, International Financial Statistics, 2008; UN, UN ComtradeDatabase, 2008; World Bank, World Development Indicators, 2008.

2005 2006 2007

Basic economic indicatorsGDP (USD billions) 765 991 1 291GDP growth (%) 6.4 7.4 8.1GDP per capita, PPP (USD) 11 861 13 205 14 743Inflation (annual average, %) 12.7 9.7 9.0Exchange rate (annual average, local currency per USD) 28.3 27.2 25.6Population (million) 144 143 142Population in rural areas (%) 27.0 27.0 27.0Share in GDP (%)

Agriculture 5.4 5.0 4.6Industry and construction 32.9 31.9 31.7Services 56.4 58.0 57.9

Share in employment (%)Agriculture 11.3 10.8 10.2Industry and construction 21.7 21.3 21.2Services 59.6 60.2 60.8

Average share of food in households’ consumer expenditures (%)

33.2 31.6 28.4

Basic agricultural indicatorsAgro-food exports (% of total exports) 1.7 1.7 2.6Agro-food imports (% of total imports) 17.0 15.1 13.8Agro-food trade balance (USD million) –12 755 –15 831 –18 518GAO (% change from previous year) 2.3 3.6 3.3Total cereal production (million tonnes) 78.2 78.6 81.8Total meat production (million tonnes) 4.9 5.2 5.6Natural resources and farm structureAgricultural land per farm (ha):1

Large and medium agricultural organisations n.a 3 834.0 n.a.Small agricultural organisations n.a 1 164.0 n.a.Family-type ("peasant") farms n.a 85.0 n.a.Household plots n.a 0.4 n.a.

Agricultural land (million ha) 192.6 191.7 190.6Arable land per capita (ha) 0.8 0.8 0.7Land sown to crops (million ha) 77.5 77.1 76.4

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120

140

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1996

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1998

1999

2000

2001

2002

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2004

2005

2006

2007

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Annual rate of growth

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Agro-food balance (including fish and fish produc

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Policy developments

Main policy objectives and instrumentsThe federal Law on Development of Agriculture (2006) defines six objectives of

agricultural policy: i) improvement of the competitiveness and quality of agricultural

products; ii) sustainable rural development and improvement of the living standard of the

rural population; iii) conservation and reproduction of natural resources used in

agriculture; iv) formation of an efficiently functioning agricultural market and

development of market infrastructure; v) creation of a favourable investment climate in

the agro-food sector; and vi) support of agricultural input-output price parity. This Law is a

broad framework document, while the government’s action plan is set out in the State

Programme for Development of Agriculture for 2008-12 (see below). This programme

explicitly takes up the first three of the six objectives above, i.e. competitiveness, rural

development and resource conservation. These objectives are translated in the Programme

into specific targets for implementation over the five-year period with the underlying

policy actions and financing. The general thrust of the Programme is two-fold – to

stimulate domestic agricultural production and to improve the social and demographic

situation in rural areas. Both processes are viewed as mutually reinforcing. Among the

means to achieve the stated goals, priority is given to facilitating access to finance for

agricultural producers and rural people. A special emphasis is given to capitalisation and

technological modernisation of production, and improvements in social infrastructure in

rural areas. The Programme also sets out specific assistance measures for small-scale

farms and rural households. A new feature is the explicit focus on services to producers,

such as consulting, extension, and information.

In recent years, the Russian government has moved to put in place a new regulatory

and administrative framework for agricultural policies. First, this concerned new principles

of interaction between the federal centre and the regions. With the federal government

maintaining a large role in the formulation of key policy objectives and in financing the

core set of support measures, regions received freedom to define their specific sets of

support measures, but with that, additional financing responsibilities. Second, a series of

large federal programmes were launched, meaning that a programming approach was

widely applied to the implementation of support (Box 6.1).

Russia uses a wide range of agricultural policy instruments. The country is a large

agro-food importer and applies border protection, complemented by direct price subsidies.

Market interventions and export duties are used in export-oriented sectors. The bulk of

budgetary support is destined for interest rate subsidies, subsidies for purchased variable

and capital inputs and capital grants. Agricultural producers also benefit from implicit

support through debt forgiveness or restructuring and various preferences on taxes and

social contributions.

In 2007-08, food price inflation was one of the major concerns and agricultural policy

measures constituted part of the government’s anti-inflation campaign (Box 6.2).

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Box 6.1. New regulatory and administrative framework for agricultural policies in Russia

As part of the broad administrative reform initiated in 2004, a new division ofresponsibilities between the federal and regional levels emerged in the implementation ofagricultural policy.1 Under these reforms the federal authorities remain responsible for theformulation of strategic agricultural policy directions, agricultural market interventions,and the development and financing of federal (nationwide) agricultural supportprogrammes. The implementation of federal programmes in regions is the responsibilityof regional authorities. They can adopt any particular set of support measures amongthose determined in the federal programmes. However, for a large part of these measuresregions are required to provide co-financing in order to receive federal funds. The federalpart is transferred as federal subventions to the regional budgets. Regions can alsoimplement additional local support measures and finance them from their own resources.This distribution of responsibilities between the federal and regional authorities resemblesthat between the European Union and its member states in implementation of the EU’sCommon Agricultural Policy. These administrative changes resulted in the emergence ofthree broad groups of support policies in Russia: i) those defined and financed by thefederal government, ii) those co-defined and co-financed by federal and regionalauthorities, and iii) support measures defined and financed exclusively by regionalauthorities.

Along with the administrative changes described above, a longer-term policy frameworkemerged. Until the middle of the current decade, agricultural support was implemented onthe basis of annual laws and government resolutions, usually focused on some specificissues. However, several large documents have been recently adopted, together forming alonger-term policy framework for agricultural policy. This includes the Federal Law onDevelopment of Agriculture (adopted in December 2006), the National Priority Project for2006-072 and the State Programme for Development of Agriculture for 2008-12.3 Two otherfederal programmes – on Social Development of Rural Areas and the Soil FertilityProgramme,4 initiated in 2002, were extended for a new term until 2012. Apart from theselarge programmes, five “special issue” federal programmes were launched in 2008 for theperiod up to 2010: the creation of a common information space for the agro-food sector;three support programmes for the flax, rapeseed, and wine sectors, and a programme forprevention and treatment of cattle diseases.

1. Here and elsewhere in the text the term “region” is understood to be the sub-federal territorial unitsforming the Russian Federation – oblasts, krais and autonomous republics (officially named “subjects ofthe Federation” in the Russian legislation).

2. The National Project for Development of the Agro-Industrial Complex was one of the four so-called federalNational Priority Projects implemented in 2006-07; the other three concern health, education and housing(see OECD, 2007 for more detail).

3. The full official name is the State Programme for Development of Agriculture and Regulation of Markets forAgricultural Food and Fibre Products and Foodstuffs for the Period 2008-12.

4. The full official name is the Federal Programme for Soil Fertility Enhancement and Rehabilitation of Agro-landscapes as Russia’s National Heritage for 2006-10 and up to 2012.

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Box 6.2. Food price inflation in Russia

High inflation has been an on-going concern in recent years amid high economic growth andrising commodity prices. Monetary and fiscal policies balanced between fighting inflation andconstraining the real appreciation of the rouble. From mid-2007, inflation began to rise andparticularly accelerated between October 2007 and May 2008 (Figure 6.5). In June 2008, price risesslowed down.

Food (together with energy) was a major inflation driver. Food prices jumped by 15.6% byDecember 2007 compared to December 2006, and in September 2008 prices were 30% above theend-2006 level. Family budgets were strongly affected given that food takes up 28% of an averagehousehold’s expenditure and this share rises to 50% for the lowest income group (in 2006).

The government responded with a series of anti-inflation measures, including:

● Monetary tightening: the refinancing rate of the Central Bank of Russia (CBR) was increased andthe reserve requirements in the banking system tightened.

● Export restraints: duties on grain exports were imposed (between November 2007 andJune 2008).

● Import incentives: import duties on several key foodstuffs (milk and milk products, cheese, sometypes of vegetable oil and vegetables) were temporarily reduced.

● Retail price freezes: an agreement was reached with the large food processors and retailers tofreeze prices for six “socially important” foodstuffs, including bread, milk and fermented milk,sunflower oil and eggs; originally the agreement was to be in effect between end-October 2007and end-January 2008, but was extended until end-April 2008.

Among the principal foodstuffs the strongest price increases in 2008 occurred for bread andbakery products, milk products, sunflower oil and potatoes (Figure 6.6).

Figure 6.5. Russia: Consumer price indices in 2007-08December 2006 = 100


100

105

110

115

120

125

130

135

Jan.

07

Feb.

07

Feb.

08

Mar. 07

Apr. 07

May 0

7

June

07

July

07

Aug. 0

7

Aug. 0

8

Sept. 0

7

Oct. 07

Nov. 0

7

Dec. 0

7

Jan.

08

Mar. 08

Apr. 08

May 08

June

08

July

08

Sept. 0

8

Total CPI Foodstuffs Non-food goods%

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State Programme for Development of Agriculture in 2008-12

The State Programme for Development of Agriculture in 2008-12 is the key document

establishing government actions on agricultural support. It succeeded the National Priority

Project, which was implemented in 2006-07, and continues the main support measures of

that Project. Other policy measures existing over and above the National Priority Project

were also incorporated into the State Programme.

It is planned to allocate RUB 551.3 billion (USD 22 billion) from the federal budget for

implementation of the Programme over a five-year period. For many items, the federal

spending is conditioned by co-financing from the regional budgets and non-budgetary

sources.

The State Programme incorporates five components: (1) Sustainable Development of

Rural Territories; (2) Creation of Basic Conditions for Agricultural Production; (3) Development

of Priority Sub-sectors of Agriculture; (4) Achieving Financial Sustainability of Agriculture; and

(5) Regulation of Markets for Agricultural Food and Fibre Products and Foodstuffs (Figure 6.7).

Each component is further detailed into specific sets of tasks and actions. This is

complemented by a five-year budget plan and a set of evaluation criteria for each of the tasks.

The execution of financial targets is monitored by the federal Ministry of Agriculture.

The Programme’s first component on rural development deals with improvements of

rural settlements, infrastructure and housing for rural people. The second component on

Box 6.2. Food price inflation in Russia (cont.)

Figure 6.6. Russia: Retail price growth rates for key food itemsCumulative growth rate between January 2007 and September 2008

Source: FSSS, Federal State Statistics Service of the Russian Federation, 2008.statLink 2 http://dx.doi.org/10.1787/531145424363

%

0

10

20

30

40

50

60

70

80

90

100

Bread and bakeryproducts

Red meat and

poultry

Milk and milkproducts

Butter Eggs Sunflower oil Potatoes Sugar

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creation of basic conditions for agriculture contains measures for land conservation and

development of farm services. The component on development of priority sub-sectors

establishes support for breeding of pedigree animals, elite seed production and

development of specific activities, such as production of flax, rapeseed, perennial

plantations, sheep and horse breeding, and some other activities. The component on

financial sustainability is the largest in terms of budget, with most of the spending

destined for interest rate subsidies on loans to agricultural producers and rural households

(Figure 6.8). The fifth component on market regulation includes financing for grain

Figure 6.7. Russia: Components of the State Programme for Development of Agriculture in 2008-12

Budgeted annual spending

Source: GFR, Government of the Russian Federation, 2007.statLink 2 http://dx.doi.org/10.1787/531162748522

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

2008 2009 2010 2011 2012

RUB million

Regulation of agricultural markets

Development of priority agricultural sectorsSustainable rural development

Financial sustainability of agriculture

Creation of basic conditions for agricultural production

Figure 6.8. Russia: Expenditures under the Financial Sustainability Component of the State Programme

Percentage of aggregate spending for 2008-12

Source: GFR, Government of the Russian Federation, 2007.statLink 2 http://dx.doi.org/10.1787/531223406215

Capitalisation of Rosagroleasing

2%

Capitalisation of Rosselkhozbank

3%

Risk reduction in agriculture11%

Agricultural organisations 59%

Small producers 12%

Technological modernisation13%

Interest ratesubsidies84%

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interventions; development of standards for meat products and monitoring of supply and

disappearance situation for key agricultural commodities.

The majority of policy measures discussed in the following sections are implemented

within the framework of the State Programme.



The main instrument of price support in Russia is border protection, but there are also

several domestic policies.

Direct per tonne payments are provided from regional budgets for marketed meat,

milk, eggs and wool. About 74% of these payments went to milk in 2006-07. In 2008,

following a sharp rise in feed costs, poultry and pigmeat producers received additional per

tonne subsidies from the federal budget. In the crop sector, a federal per tonne subsidy is

available to growers of flax and hemp, while some regions also provide payments for

grains, potatoes and some other crops. Overall, per tonne payments represent a small

share of total support to producers – they comprised on average 3% of PSE in 2006-07.

Since 2001, Russia has implemented grain market interventions, which are carried

out by the Federal Agency for Regulation of Food Market. The mechanism is based on a

band between established minimum and maximum prices. When market prices fall below

the lower band level, the government begins withdrawals of grain from the market (a

purchase intervention). When market prices rise above the upper band level, grain is

released onto the market (a commodity intervention). The release of grain is done at

maximum prices. The withdrawal can be implemented either through purchasing grain at

minimum prices or providing loans against pledged grain. The intervention price bands are

established separately for milling wheat, feed wheat, rye, feed barley, and maize. During

the purchase intervention the government may restrict imports of grain, while during the

commodity intervention exports may be restricted. The possibility of grain pledge loans

during the periods of low prices is a new feature stipulated in the 2006 Law on

Development of Agriculture. Operational procedures for this mechanism have not yet been

defined. Another important change in the intervention mechanism is the exclusion of

middlemen/traders from intervention purchases. This involves new logistical

arrangements for accepting grain directly from producers, but has not yet been put in

place. The exclusion of middlemen may complicate the intervention purchases in the 2008/09

season.

Grain commodity interventions were implemented between October 2007 and

June 2008 to restrain domestic prices. Around 1.3 million tonnes were released in the grain

market (almost 85% of total intervention stock), predominantly in large industrial centres

and grain-importing regions. At the beginning of the 2008/09 season, the situation in the

grain market changed radically. The largest grain crop since 1990 was harvested in 2008,

reaching 108 million tonnes. Consequently, in mid-2008, grain prices began falling steeply.

RUB 34 billion (USD 1.2 billion) were allocated in the federal budget for grain purchase

interventions. As of early December 2008, 2.5 million tonnes were purchased, at a cost of

around RUB 12.5 billion (USD 444 million). However, grain analysts estimate that the

capacity of intervention system to withdraw grain will be limited to no more than

5.5 million tonnes, mainly due to storage and logistical constraints. This situation

prompted the government to consider additional measures to enhance exports (see below).

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There are several types of per animal and hectare payments, but they have small

importance in the overall budgetary support. Breeders of pedigree livestock receive

payments per animal raised. Since the 1990s, federal per head payments have been

provided to breeders of sheep and reindeer, and since 2008, horses raised extensively.

These programmes are implemented in the context of policy for maintaining traditional

lifestyles of some national minorities in Russia. Per hectare support is provided for

maintenance and establishment of permanent plantations.

Concessional credit and input subsidies

Concessional credit is one of the main agricultural support measures. Support is

delivered in the form of subsidies to interest rates on bank loans. Allocations for interest

rate subsidies were the main spending item under the 2006-07 National Priority Project and

take up 45% of the aggregate five-year spending foreseen under the 2008-12 State

Programme. Federal funds are transferred to regions for implementation, but for some

types of loans this is done on the condition that regions top-up the federal subsidy.

All categories of producers – agricultural organisations, small family-type farms and

households – are eligible for interest rate concessions. The subsidy may also be provided

on loans issued to producer co-operatives engaged in agro-processing and, in specified

cases, to food processors. Loans of different terms are subsidised, including short-term

loans (for up to one year) and investment loans (for up to two, five or eight years).

The subsidy is transferred directly to borrowers; its rate is defined on the basis of the

re-financing rate of the Central Bank of Russia (CBR) and varies by type of beneficiary. For

agricultural organisations and food processors, the subsidy is set at two-thirds of the CBR

rate (effective at the date of conclusion of the credit contract). When the loans are given for

the construction of livestock complexes or purchase of agricultural machinery, there is a

requirement that regional governments co-subsidise no less than the remaining one-third

of CBR rate. For small farms and producer co-operatives, the interest rate subsidy is set at

95% of the CBR rate, and the regional authorities are required to top-up the federal part no

less than the remaining 5% of CBR. The borrower is to cover the difference between the

bank lending rate and the government-subsidised part of the interest.

The launch of the National Priority Project in 2006 provided a strong boost to

subsidised credit. A further increase in lending to agriculture is one of the key policies of

the State Programme for 2008-12. The scale and scope of subsidised credit substantially

broadened in recent years. The policy has been extended to long-term and medium-term

lending, whereas before interest rate subsidies were only provided for short-term loans.

The list of beneficiaries was broadened to include rural households and producer co-

operatives, and the purpose of eligible borrowing diversified. For example, in 2007 and

2008, producer co-operatives and food processors could additionally receive subsidised

loans for the purchase of domestically produced flour for bread making and

supplementary raw materials, and for financing milk transportation services. Rural

households are now eligible for interest rate subsidies on loans to develop non-agricultural

business. Between the end of 2005 and mid-2008, the amount of subsidised credit had more

than quadrupled in nominal terms, mostly due to a considerable increase in investment

credit (Figure 6.9).

The majority of subsidised loans provided to agricultural organisations were obtained

for the construction, reconstruction and modernisation of livestock complexes. Work was

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completed in around 510 facilities in 2006-07, and is in progress in 3 000 others. Short-term

and medium term borrowings were also much related to the livestock sector, and were

used for purchasing machinery, equipment, pedigree livestock and variable inputs required

for the functioning of the new and reconstructed livestock units.

Subsidised loans for small family-type farms and households were provided to

purchase all kinds of inputs and investments with the objective of increasing the marketed

share of production in these units. The amount of subsidised loans provided to small

borrowers increased from RUB 300 million (USD 11 million) in 2005 to RUB 49 billion

(USD 1.9 billion) in 2007, and had reached almost the same level between January and

May 2008. This borrowing, however, is undertaken by only 3% of the total number of small

farms and rural households – those that are actively seeking additional finance to

commercialise production.

As can be seen from Figure 6.10, the federal and regional expenditures to subsidise

interest rates have risen considerably since 2005. This largely reflects the broadening of

concessional credit, as well as the fact that the subsidy is cumulative and in part covers

loans issued in previous years.

An additional spending element is the capitalisation of the leading agricultural bank –

Rosselkhozbank (100% of stock of this bank is federal ownership). According to the Russian

Ministry of Agriculture, it currently provides around 60% of the value of concessional credit

to the agro-food sector. The allocation to Rosselkhozbank foreseen under the State

Programme was originally to develop the banks’ capacity to service small borrowers. This

includes extension of the network of local branches, recruitment and training of additional

staff to service small borrowers. The operations with small borrowers are associated with

increased costs and typically do not attract private banks. In 2006, RUB 10.1 billion

(USD 0.37 billion) were invested by the federal government into Rosselkhozbank and

RUB 6.9 billion (USD 0.27 billion) in 2007. It was originally planned to contribute only

additional RUB 2 billion (USD 80 million) in 2008, but according to more recent information,

Figure 6.9. Russia: Concessional credit allocations in 2005-08

Source: Ministry of Agriculture of the Russian Federation.statLink 2 http://dx.doi.org/10.1787/531225336721

0

100

200

300

400

500

600

2005 2006 2007 Jan - May 2008

RUB billion

Small farms and households: all credit Agricultural organisations: Short-term creditAgricultural organisations: Investment credit

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RUB 31.5 billion (USD 1.31 billion) is to be transferred to the bank from the federal budget.

This sum will be used largely to cover the bank’s deficit of liquidity to satisfy the

applications for concessional credit.

In addition to concessional credit, there is a range of direct subsidies for variableinputs and investment (this support is provided to agricultural organisations and small

farms, and does not cover rural households). These include subsidies for purchasing

mineral fertiliser, chemicals and elite (high quality) seeds, and for transporting seeds to

areas with adverse climatic conditions for cultivation of feed crops. In 2006-07, due to a

sharp rise in fuel prices, a subsidy for fuel used for sowing was paid. In late 2008, it was

decided to provide again RUB 10 billion (around USD 424 million) for subsidising fuel costs.

Livestock breeders can receive a subsidy for the purchase of young pedigree livestock and

for artificial insemination. The farms specialised in raising pedigree cattle benefit from

financial aid for acquiring breeding bulls.

The input assistance also includes such programmes as state leasing of

agricultural machinery and pedigree livestock. A state Rosagroleasing company is the

implementing agency, which together with Rosselkhozbank receives considerable

federal funds for capitalisation (Figure 6.8). There are also capital grants for the

construction and reconstruction of farm buildings and improvement of irrigated lands.

A major part of all activities above is implemented in the framework of the State

Programme and co-financed from federal and regional budgets. Other specific local

input support may also be provided in the regions, but the main policies are realised

under the umbrella of the State Programme. Aggregate expenditures on all the

programmes listed above (excluding interest rate subsidies) comprised, on average, 9%

of total PSE in 2006-07, with roughly equal co-financing from the federal and regional

budgets.

Figure 6.10. Russia: Budgetary expenditures related to concessional credit, 2005-08

Source: Ministry of Agriculture of the Russian Federation.statLink 2 http://dx.doi.org/10.1787/531244261822

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008

RUB billion

Capitalisation of Rosselkhozbank: federal funds Interest rate compensation: federal fundsInterest rate compensation: regional funds

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The most recent development in policies aimed at reducing the cost of agricultural

inputs was a “fertiliser marketing pact” concluded in October 2008 between the

government and Russian fertiliser producers. The latter will supply minimum quantities of

fertiliser to domestic market at prices not exceeding agreed maximum levels. In return, the

government undertook to lift the export tax on fertilisers. This arrangement is to be in

place until 2012.

In the second half of 2008, the agro-food sector felt the effects of the financial crisis.

The immediate impact on agriculture manifested itself in two ways. Retailers and

processors, experiencing a credit crunch, began holding back payments to primary

producers. At the same time, producers faced difficulties in obtaining credit, both for

current operations and investment. The deterioration of the cash flow situation in the

sector prompted the Ministry of Agriculture and major agribusiness stakeholders to

consider special relief measures. Currently, a stabilisation package for Rosselkhozbank is

being established. The Ministry of Agriculture is also proposing to oblige banks not to

revise the interest rates under the current loans, as well as not to tighten credit guarantee

requirements. Some representatives from agribusiness also made suggestions to relax

reserve requirements for banks lending to the agro-food sector and extend the existing

agricultural loans. The contraction of bank lending poses a substantial challenge for the

implementation of the State Programme. Specifically, this concerns the Programme’s

preferential credit component – interest rate subsidising foreseen under this component is

fully coupled with bank lending. The provisions of the Programme are expected to undergo

changes to reflect the latest financial developments. At the moment of writing no official

actions were announced.

Tax policies

A Single Agricultural Tax (SAT) was introduced for agricultural organisations in 2003,

who could choose to adopt the SAT or maintain the previous tax regime. The SAT is set at

6% of the difference between the value of gross receipts and the value of costs of the

agricultural organisation. Those adopting the SAT are exempt from income tax, property

tax, Single Social Tax, and, except in specified cases, also from VAT. As of 2008,

approximately 65% of the agricultural organisations have adopted this tax.

Those agricultural organisations not adopting the SAT benefit from the preference on

income tax applied to their earnings from primary agricultural and processed products. A

zero income tax is currently applied in this case compared to a standard rate of 24%. The

federal Ministry of Agriculture proposes to extend this preference until 2012.

In addition to concessions associated with the SAT, there are other VAT preferences

related to the agro-food items. A reduced VAT rate of 10% (compared to the standard 18%

rate) is set for live cattle and poultry. The same preferential rate is applied to a range of key

foodstuffs, such as meat, milk and milk products, vegetable oil and margarine, refined and

raw sugar, eggs, and vegetables. A number of agricultural inputs, including feed grains,

feed mixes, oilseed meals and cakes are also sold with a 10% VAT rate.

The total amount of taxes and social payments collected from agricultural

organisations at all levels of the budgetary system equalled RUB 82.7 billion

(USD 3.2 billion) in 2007. VAT collections comprised the largest part of the total (35%),

followed by Single Social Tax (24%), while the share of the Single Agricultural Tax was

only 1.5%.

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Biofuel policies

Russia disposes of large forestry resources for biomass production as well as non-

utilised agricultural land which could potentially be used for production of biofuel crops.

The interest in bioenergy has increased in recent years. A State Programme on Priority

Directions for Research and Development for 2007-12 allocated RUB 55.8 million

(USD 2.2 million) for development of technologies and equipment for production of energy

from biomass. A Russian Biofuel Association has been created recently, with the objectives

to promote research, develop pilot projects and initiate legislation on biofuel issues.

However, no specific policies that support biofuel production are currently being

implemented, although the federal government announced in 2008 an intention to adopt a

programme for the development of biofuel production. This programme would envisage an

increase in ethanol output to 2 million tonnes per year, as well as construction and

reconstruction of 30 ethanol plants. There are some initiatives at the regional level. For

example, a regional programme on development of biofuel production was prepared in

Rostov oblast (in the South of Russia), which foresees the production of biodiesel for use in

agriculture.

Land policies and farm structure

Two basic federal acts regulate agricultural land issues, the Land Code of the Russian

Federation (2001) and federal Law on Turnover of Agricultural Land (2002). The latter act

has been under permanent development, undergoing numerous amendments since

adoption. An important part of land issues, mainly related to the application of broader

federal norms, is regulated by regional legislation.

In recent years, some regions began adopting special measures to stimulate the return

of agricultural land into cultivation. These include subsidising costs of physical

delimitation and allotment of land to owners of land shares; subsidising costs of

registration of land ownership rights; as well as simplifying legal procedures concerning

transactions with agricultural land. Some regions buy idle land from rural population, a

policy targeted in particular to aged persons.

The initial privatisation in agriculture was largely completed in the 1990s and led to

the emergence of multiple legal forms of private agricultural enterprise. In the current

decade, the ownership arrangements diversified as did the farm structure (Figure 6.11).

According to the 2006 Agricultural Census, there were 48 179 agricultural

organisations, which in large part represented the successors of former collective and state

farms. Around 80% of these units had the legal status of joint stock companies or

production co-operatives, 5% were state or municipal enterprises and 15% had other legal

forms. Agricultural organisations account for nearly 79% of total agricultural land, and are

substantially differentiated by size. The 2006 Agricultural Census distinguished “large and

medium” agricultural organisations, which had on average 3 834 hectares of agricultural

land per unit, and “small” agricultural organisations, which had 1 164 hectares per unit.

However, out of the total registered number of agricultural organisations (48 179), 32%

reported that they had no agricultural operations in 2006 (Figure 6.12). This includes units

which formally ceased agricultural production (27%) and units reporting that they stopped

production temporarily (5%). Around 35% of all agricultural land occupied by agricultural

organisations was not utilised in 2006 (Figure 6.13). It is important to note that the data on

total land occupied by agricultural organisations and average size relate to the total

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Figure 6.11. Russia: Distribution of agricultural land by type of farm, as of 1 July 2006

1. Other types include subsidiary farms of industrial enterprises and gardening associations.

Source: FSSS, 2006 Russian Agricultural Census.statLink 2 http://dx.doi.org/10.1787/531264547615

5%2%

Agricultural organisations79%

Household plots

“Peasant” and “individual

producer” farms15%

Other types

Figure 6.12. Russia: Share of farms reporting agricultural operations in 2006

Source: FSSS, 2006 Russian Agricultural Census. statLink 2 http://dx.doi.org/10.1787/531286667376

0 10 20 30 40 50 60 70 80 90 100

Other

Household plots

“Peasant” and “individual producer” farms

Agricultural organisations

%

Units reporting agricultural operations Units reporting no agricultural operations

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number of units, including those with no agricultural operations reported (this is also the

case for other farm types below).

Along with these large-scale farms, there existed 285 141 family-type farms. According to

the legal status, they distinguish “peasant” and “individual producer” farms. The former have

emerged since the early 1990s, as a result of policies to develop individual family-type farming

in Russia. The legal status and the procedures for creating “peasant” farms are regulated by

special laws. The “individual producer” farms are those typically created by the owners of

household plots (see below) or other investors on the basis of general business legislation.

Despite the differences in legal background, these units are similar, in that they all represent

small family-type farming. Altogether they dispose of 15% of total agricultural land, with an

average “peasant” farm operating on 85 hectares of agricultural land and an “individual

producer” farm on 80 hectares. Only slightly more than one-half of “peasant” farms and two-

thirds of “individual producer” farms had agricultural operations in 2006, implying that others

were either involved in non-agricultural business or remained non-functional. Around 80% of

total agricultural land in this group of farm was not utilised in 2006.

Agricultural organisations, “peasant” and “individual producer” farms are the

commercially-oriented production units. There also exist 22.8 million households with

tiny land plots (0.4 hectare of agricultural land on average). Around 89% of these

households were producing agricultural products in 2006, but mostly for own

consumption. Nearly 20% of agricultural land in households was not utilised.

Agricultural organisations typically use land and other farm assets on the basis of

lease contracts with individual shareholders, which emerged in the process of initial farm

privatisation. A notable trend is the transfer of land ownership from physical persons –

Figure 6.13. Russia: Share of utilised agricultural land in farms of different type in 20061

1. In per cent to total agricultural land in farms of different type.

Source: FSSS, 2006 Agricultural Census.statLink 2 http://dx.doi.org/10.1787/531287516788

0 10 20 30 40 50 60 70 80 90 100

Other

Household plots

“Peasant” and “individual producer” farms

Agricultural organisations

Utilised agricultural land Non-utilised agricultural land

%

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original holders of shares – to legal entities through purchase of shares or accepting shares

as investment into the company’s charter capital. In 2006, for example, 25% of agricultural

land was owned by legal entities in the Moscow region, 23% in the Kaliningrad region and

17% in the Republic of Tatarstan, compared to 3% for Russia as a whole.

Another feature of concentration in the sector of agricultural organisations is the

emergence of so-called agro-holdings. They represent complex institutional arrangements,

usually involving the take-over of assets of insolvent or bankrupt farms by outside investors.

In 2006, there existed 318 private agro-holdings, in which 1 247 agricultural organisations

participated (agro-holding is understood to be an entity consisting of agricultural

organisations, processing, and service units which are independent legal entities, but whose

controlling stock belongs to one common holder). Private holdings employed 218 000 people

and had 7.8 million hectares of agricultural land. There were also 463 state holdings (83% of

them were municipal entities), with participation of 2 444 agricultural organisations and

9.6 million hectares of agricultural land at their disposal (VIAPI 2008b).


Import measures

Russia runs a significant agro-food trade deficit, which reached USD 18.5 billion in

2007. The largest (and expanding) import group concerns meat and meat products.

Imports of red meat and poultry from outside the CIS area (Commonwealth of

Independent States) are subjected to a tariff rate quota (Table 6.3). The quotas are

allocated annually to countries based on historical imports. According to the Federal

Customs Service, the quota fill rates were 71% for beef, 97% for pigmeat and 92% for

Table 6.3. Russia’s meat import quotas in 2005-09

n.l.: “but not less than”.1. Over-quota tariff rates shown for 2005 are those in effect between June and December. 2. The over-quota tariff levels scheduled initially for 2009 were: 40% but not less than EUR 0.53 per kg for fresh, chilled or

frozen pigmeat; and 40% but not less than EUR 0.32 per kg for fresh, chilled or frozen poultry.Source: GRF, 2005.


2005 2006 2007 2008 20092

Beef fresh and chilled

TRQ, thousand tonnes 27.5 27.8 28.3 28.9 29.5

In-quota tariff 15%, n.l. 0.2 EUR/kg 15%, n.l. 0.2 EUR/kg 15%, n.l. 0.2 EUR/kg 15%, n.l. 0.2 EUR/kg 15%, n.l. 0.2 EUR/kg

Over-quota tariff1 40%, n.l. 0.53 EUR/kg 55%, n.l. 0.7 EUR/kg 50%, n.l. 0.65 EUR/kg 45%, n.l. 0.6 EUR/kg 40%, n.l. 0.53 EUR/kg

Beef frozen

TRQ, thousand tonnes 430 435 440 445 450


Over-quota tariff1 40%, n.l. 0.4 EUR/kg 55%, n.l. 0.55 EUR/kg 52.5%, n.l. 0.53 EUR/kg 50%, n.l. 0.5 EUR/kg 40%, n.l. 0.4 EUR/kg

Pigmeat fresh, chilled or frozen

TRQ, thousand tonnes 467.4 476.1 484.8 493.5 531.9


Over-quota tariff1 80%, n.l. 1.06 EUR/kg 60%, n.l. 1.0 EUR/kg 60%, n.l. 1.0 EUR/kg 60%, n.l. 1.0 EUR/kg 75%, n.l. 1.5 EUR/kg

Poultry meat fresh, chilled or frozen

TRQ, thousand tonnes 1 090.0 1 130.8 1 171.2 1 211.6 952


Over-quota tariff1 No over-quota imports 60%, n.l. 0.48 EUR/kg 60%, n.l. 0.48 EUR/kg 60%, n.l. 0.48 EUR/kg 95%, n.l. 0.8 EUR/kg

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poultry meat in 2007. The under-fill of the beef quota is partly explained by the fact that

the bulk of it is allocated to the European Union. EU deliveries were restrained by bans on

beef imports from these countries on technical grounds and in connection with animal

disease. Nevertheless, total imports of all types of meat exceed the quota levels due to

over quota deliveries, largely from Brazil and Argentina. In 2006-07, over-quota imports

accounted on average for nearly 40% of total imports of beef, 30% of pigmeat and 11% of

poultry meat. In December 2008, the government announced changes in meat TRQ regime

for 2009. The tariff quota volume for poultry was cut to 952 000 tonnes from the initially

scheduled level of 1 252 000 tonnes. For pigmeat, in contrast, the quota was increased

compared to the scheduled level – to 531 900 tonnes against 502 000 tonnes foreseen

intially. Changes in the initially foreseen over-quota tariffs were also made, involving a

substantial rise in over-quota rates for pigmeat and poultry.

Another new regulation concerning meat imports was the introduction in 2006 of the

minimum customs valuation for imports of beef and pigmeat. This measure was officially

part of the fight against customs fraud, in particular under-reporting of value for customs

duty.

A special import regime is applied to sugar. White sugar imports from areas outside

the CIS are levied a duty of USD 340 per tonne, while CIS imports are duty free (if sugar is

processed from sugar beet). The duty free treatment, however, is not extended to trade

between Russia and Ukraine – both countries mutually apply their MFN tariffs. The main

developments with respect to white sugar concerned trade with Belarus, the largest CIS

supplier to Russia. Problems emerged when it was found that sugar imported from Belarus

was not locally produced (to be eligible for duty-free entry), but re-exported. In 2007, an

agreement was signed between the governments of Russia and Belarus, introducing a strict

regulation of white sugar trade between the two countries. The agreement establishes

Russia’s annual import quantities (180 000 tonnes in 2007 and 100 000 in 2008) and import

prices, which should be at the level of Russian wholesale prices for white sugar. A list of

authorised companies which can make deliveries to Russian market was established, all

belonging to the Belorussian State Concern.

A different tariff regime is applied to imports of raw sugar. A variable import levy is set

for these imports, which is pegged to the average monthly price at the New York Board of

Trade (NYBOT) and may vary between USD 140 and 270 per tonne. A higher NYBOT price

commands a lower tariff and vice versa. Some modification was introduced in this regime

in 2007. A higher seasonal duty will now be applied for the period between 1 December and

31 May. The duty is established within the range of USD 220-270 per tonne. Thus, from

1 December 2007 to 31 May 2008 the seasonal duty was set at USD 220 per tonne, then it

was brought down to USD 140 in June 2008, to the level applied throughout most of the

2007. This measure resulted in a sharp fall in raw sugar imports in the first half of 2008. The

seasonal duty was again imposed for the 2008/09 season.

In addition to raw sugar, a seasonal duty was imposed for rice and cereal products

processed from rice (EUR 120 per tonne compared to a standard rate of EUR 70 per tonne).

This duty was effective between 1 March and 31 May 2007, and 1 October and 31 December

2007. On the other hand, reduced seasonal duties (5% compared to standard 15%) were

introduced for some vegetables (cabbage, carrots and red beets) and a duty-free import of

tea and nuts was allowed between February and October 2007.

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In addition to tariff protection, Russia applied import restrictions on phytosanitary,

veterinary or technical grounds. In 2006-08 they concerned a number of countries in the

CIS and the European Union, Brazil, India, Pakistan, Turkey, the United States, and

Vietnam.

The food price crisis prompted ad hoc import regulations meant to reduce pressure on

food prices. Import duties on milk and milk products were cut from 15% to 5% between

mid-October 2007 and mid-April 2008. For cheese types subjected to a differentiated

specific duty of up to EUR 0.7 per kilo it was set at a minimum level of EUR 0.3 per kilo and

for all other types of cheese at 5% ad valorem. Import duties on vegetable oils were brought

down from 15% to 5% for six months starting from 1 December 2007.

Export measures

Russia’s agro-food exports are small relative to imports, but they have nearly

quadrupled in value terms over 2005-07. The key exported item is grains (mostly wheat),

which accounted for 42% of total agro-food exports in 2006-07. Regulation of grain exports

changed from stimulation in 2006, to restriction during the peak of food price inflation from

the end-2007 to mid-2008, and subsequently back to duty-free exports since mid-2008.

In mid-2006, railway tariffs for transporting grain for export from the Siberian district

to the Far-Eastern ports of Russia were halved (this preference was later applied to all grain

transportation from Siberian to the Far-Eastern district). However, from late-2007, when

domestic food prices soared, export-restricting measures were imposed. On 12 November

2007, export duties were introduced for wheat and meslin (10% but not less than EUR 22

per tonne) and barley (30%, but not less than EUR 70 per tonne). This did not bring about a

reduction in exports, as prices on world markets continued to climb. Consequently, on

1 February 2008, the export duty for wheat was raised to a prohibitive level (40% but not

less than EUR 105 per tonne). In addition, in order to prevent outflows through the duty-

free zone of the Customs Union (between Belarus, Kazakhstan, Kyrgyzstan, and Russia),

exports of wheat and meslin to Belarus and Kazakhstan were temporarily banned.

Since 1 July 2008, export duties on wheat and barley have been abolished in view of

exceptionally high grain harvest. Russia’s potential grain exports for the 2008/09 season are

estimated at 17-23 million tonnes. Exports are limited, however, by the capacity of the

existing infrastructure to direct product to external markets. By mid-November 2008,

nearly 10 million tonnes were exported and contracts for shipments of another 4 million

tonnes were made. According to grain analysts, another 10 million tonnes would need to

be exported in order to stabilise domestic grain prices. In late 2008, the government

announced plans to stimulate grain exports. Among possible measures are the shortening

of standard terms for VAT refunds to grain exporters and reductions in railway tariffs and

port terminal fees (until the beginning of the next crop year). There were also proposals for

the introduction of export subsidies either as direct payments to exporters or as credits to

importing countries. The export subsidies are actively solicited by grain exporters who

argue that this places a smaller burden on the state budget than intervention purchases of

grain. In January 2009, a 50% reduction in railway tariffs for grain transportation was

announced. This only concerned long-distance transportation of grain to deficit regions

inside Russia and transportation to export ports from several producing regions. Regarding

other proposals, no official announcement has been made to date. The prospects for

introduction of export subsidies become more uncertain as the government faces growing

budgetary pressures in the current economic situation. Also, the Ministry of Economic

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Development and Trade has noted earlier that this may complicate Russia’s WTO accession

negotiations (USDA, 2008).

In mid-2008, the Russian Ministry of Agriculture announced plans to reorganise the

Federal Agency for Regulation of Food Market (FARFM) and create in its place a Unified

Grain Company. Around 28 companies, including grain elevators and grain millers within

the FARFM system, and two sea export terminals are to be unified into the Corporation. It

is intended to keep 25% plus one stock in the new company’s capital as federal ownership,

with the remaining shares to be subsequently offered to private investors. The new

company may potentially be able to control a large share of Russian grain exports.

Food price inflation prompted export-restricting regulation for other products. In mid-

December 2007 a list of food items was published for which the government could introduce

temporary export restraints. In addition to grains (wheat and meslin, rye, barley, and maize),

this list included milk and cream, flour, oilseeds (rapeseed, soybeans and sunflower seed)

and vegetable oils. Oilseeds have been subjected to export duties since 1992 to support

domestic oil crushers. The duty is set at 20% but not less than EUR 30 per tonne for sunflower

and 20% but not less than EUR 35 per tonne for rapeseed and soybeans. In March 2007, the

duty for rapeseed was reduced to 15% but not less than EUR 30 per tonne.

WTO accession

Russia has reached an advanced stage of accession negotiations. A broad

harmonisation of the national legislation with WTO requirements was implemented.

Numerous laws and regulations related to trade, currency, balance of payments, banking,

insurance systems, intellectual property and other issues underwent scrutiny and were

brought in compliance with the WTO criteria. New legislation was adopted, a few examples

are the federal Law on Special Protection, Antidumping and Compensatory Measures

Applied to Imports of Goods (8 December 2003), Law on Technical Regulation (1 July 2003),

new Customs Code (1 January 2004), and amended Law on Customs Tariff (2006).

Bilateral agreements on market access for goods and services were concluded with all

interested parties. However, the issue of bilateral agreement with Georgia remains open.

Georgia has earlier called off its signature under the document. The recent aggravation of

political relations between the two countries has complicated the prospects for the

agreement.

Overall, the provisions reached to date on market access imply no significant lowering

of tariff protection for agro-food items following the accession. According to the Russian

Ministry of Economic Development (September 2006), Russia’s trade-weighted average

import tariff for agro-food items of 21.5% is to be reduced to 18.9% over the implementation

period (one to six years according to product) (MERT 2006). Tariff protection for the most

sensitive import-competing items, such as meat and sugar, will remain relatively high. The

current TRQ regime for meat is to be effective up to 2009; after this term it may be modified

or abolished. There will be however a visible reduction in protection for some meat by-

products, fruits (oranges, grapes and bananas) and nuts, high-quality whey used in food

processing, wines, cognacs and whiskies.

As concerns multilateral issues, an outstanding one is the compliance of Russia’s

technical regulation on meat with WTO recommendations (this is one of the items in the

section on Technical Regulation of the Report of the Working Group on Russia’s accession).

Another issue awaiting agreement is the amount of domestic support that Russia will be

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able to provide to its agricultural sector after accession. The discussion continues to focus

on the base period to define the starting level of domestic support and the amount of

assistance as measured by the Aggregate Measurement of Support (AMS). Russia

maintains 1993-95 as the base period, an AMS of USD 9 billion and an export subsidy of

USD 156.9 million. However, several negotiating parties consider the base period too

distant and the amount of support inflated with respect to the current conditions. Russia

argues that a more recent period and the current amount of support do not reflect the

agricultural conditions appropriately, given the depth of recession the sector has gone

through in the 1990s. The inclusion of export subsidies in Russia’s proposal is also

challenged by Russia’s counterparts in the negotiations.

Meetings of the Working Group on Russia’s accession to the WTO took place in June,

July, September and November 2008. They concerned preparation of the consolidated

Report of the Working Group. A separate consultation in June 2008 was held on outstanding

multilateral agricultural issues.

Bibliography

Agronews (Russia), www.agronews.ru/.

Agra Europe East, various editions.

EIU (2008), Country Report: Russia, Economic Intelligence Unit (EIU), London UK, August 2008.

FSSS (2008a), Russia in Figures, On-line Statistical Database, Federal State Statistics Service of theRussian Federation (FSSS), www.gks.ru/.

FSSS (2008b), Results of the 2006 Russian Agricultural Census, Vol. 1, Federal State Statistics Service of theRussian Federation (FSSS), www.gks.ru/.

GRF (2005), Resolution N732 of 5 December 2005 “On Imports of Beef, Pigmeat and Domestic Poultry in2006-2009”, with amendments of 27 November 2006, 20 December 2006, 17 January 2007, 5 May2007, 19 January 2008 and 14 April 2008 and 8 December 2008, Government of the RussianFederation (GRF).

GRF (2007), State Programme for Development of Agriculture and Regulation of Markets for Agricultural Foodand Fibre Products and Foodstuffs for the Period 2008-12, Government of the Russian Federation (GRF),www.mcx.ru/index.html?he_id=1003.

MERT (2006), “Russia’s Accession to the WTO”, Speech of Mr. Gref, the Minister of EconomicDevelopment and Trade (MERT) to the State Douma (the Parliament) of the Russian Federation,16 September 2006, www.parlcom.ru/index.php?p=MC83&id=11036.

OECD (2007), Agricultural Policies in Non-OECD Countries: Monitoring and Evaluation, OECD, Paris.

Romashkin, R. (2008), “Overview of Sub-national (Regional) Agricultural Support Measures andFinancing in Russia”, Report submitted to OECD.

USDA (2008), Grain Report, No RS8090, 11 December 2008, USDA Foreign Agricultural Service,Washington DC, www.fas.usda.gov/gainfiles/200812/146306735.pdf.

VIAPI (2008a), “Development of Agriculture and Current Agricultural Policy of Russia”, All-RussiaInstitute of Agrarian Issues and Informatics (VIAPI), Report submitted to OECD.

VIAPI (2008b), Reitingi Krupnykh i Srednikh Selskokhozyaistvennykh Organisatsi v Rossii za 2004-2006 gg(Ratings of Large and Medium Agricultural Organisations in Russia in 2004-2006), All-Russia Institute ofAgrarian Issues and Informatics (VIAPI), Moscow.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 7

South Africa


● Current policies in South African agriculture are the result of substantial reforms implemented from the mid-1990s. Po

changes that impacted on agriculture resulted in deregulation of the marketing of agricultural products, liberalisation

domestic markets, and reduced barriers to agricultural trade. The main developments in trade policy included

replacement of direct controls over imports by tariffs, removal of state controls over exports and elimination of exp

subsidies. These reforms reduced market price support and budgetary support to commercial farming. In contra

increased budgetary spending went to finance the land reform process.

● The average level of producer support in South Africa, as measured by the %PSE, indicates a relatively low degree of po

intervention. The overall trend shows a reduction in support from 1994 up to 2001 followed by an increase in 2002 and t

a stabilisation around 7% in 2003-06. Around three-quarters of producer support in South Africa is delivered in the fo

of Market Price Support transfers, which causes fluctuations in the annual level of support. Budgetary transfers increa

in the current decade due to the introduction of a fuel tax rebate and increasing budgetary spending on land reform a

related programmes.

● The main agricultural policy development in South Africa, in the most recent years, is related to the implementation of la

reform. A significant share of agriculture-related public financial resources is devoted to the implementation of land refo

and especially land redistribution. To support this policy, Land Redistribution and Agricultural Development (LRAD) gra

are given to the black disadvantaged population to acquire land or engage in other forms of on-farm participation. Th

grants enable farmers who can provide personal contributions (financial and/or own labour) to acquire more land th

otherwise would be the case.

● During 2006/07, new policies were implemented to enhance the pace of land redistribution on the one hand and ensure

viability of the emerging farms on the other hand. These new policies include the Land and Agrarian Reform Project,

Pro-Active Land Acquisition Strategy, and a new focus on bringing strategic partners from private stakeholders to assis

the capacity building process.

● The black population in rural areas is the target of land reform policies, but it is clear that adequate support

infrastructure and human capital formation must also be in place if these new entrepreneurs are to survive economica

The new entrants into commercial agriculture are at a considerable disadvantage relative to more experienced operat

facing both production and marketing challenges. The government is striving to address these issues by implementing w

targeted support programmes and services (including research and development) tailored to the needs of the emerg

farms. In this regard, the involvement of private stakeholders in the land reform process may be an efficient way to eng

resources, and address weaknesses in supporting programmes and services from public authorities.

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In recent years, the main agricultural policy development in South Africa (SA) is

related to the implementation of land reform. To enhance land redistribution, three

strategic interventions have been developed and implemented since 2006/07. The

development of the Land and Agrarian Reform Programme (LARP) is designed to better

exploit synergies between land redistribution, agricultural production and agri-business

development, and align comprehensive support packages. The Pro-Active Land Acquisition

Strategy (PLAS) is designed to accelerate land delivery. The association of strategic partners

from the private sector with land reform projects is expected to strengthen the economic

viability of farms and the projects delivered.

● Support to producers (%PSE) followed a downwardtrend from 1995 to 2001, when it reached its lowestlevel. In 2002, support increased and then stabilisedaround 7%. In 2005-07, support to producers was 6%,i.e. much lower than in 1995-97. This is less than aquarter of the OECD average of 26% in 2005-07.

● The overwhelming share of producer support isdelivered in the form of Market Price Support (MPS),although it declined from 96% of total PSE in 1995-97to 76% in 2005-07.

● The producer Nominal Protection Coefficient (NPC)indicates that prices received by domestic producerswere on average 5% higher than world market pricesin 2005-07. Prices received by producers were onaverage 13% higher in 1995-97.

● However, the %SCT for individual commoditiesindicates some variation in price support. It is around15% for sheep meat and sugar; between 5 to 10% formilk, wheat and maize; and negligible for othercommodities. The share of SCT in the total PSE was 75%.

● The cost to consumers (%CSE) has reduced from animplicit tax of 14% in 1995-97 to 5% in 2005-07.

● The value of support for general services provided toagriculture (GSSE) has increased, as well as its sharein the Total Support Estimate (TSE), which hasincreased from 35% in 1995-97 to 54% in 2005-07. Thisis mainly due to an increase in general services linkedwith the implementation of land reform.

● The total cost to the economy of agricultural supportas a share of GDP declined from 1% in 1995-97 to0.59% in 2005-07, which is much less than the OECDaverage (0.97%).


Figure 7.1. South Africa: PSE level and composition over time


Figure 7.2. South Africa: Producer SCTby commodity, 2005-07


0

2

4

6

8

10

12

14

16

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6% PSEMPS and budgetary support, billion USD



1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-10 0 10 20 30 40 50 60 70


PigmeatEggs

GroundnutsApples

OrangesGrapes

SunflowerBeef and veal

PoultryMaizeWheat

MilkSugar

Sheepmeat

MPS SCT as % of PSE

% of commodity gross farm recei

Other SCTPayments based on output

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excessk, beef

267635

07

27677

906232226226

0007590

0392

024

000000000000003

.02

.03741312

0684301

140

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Table 7.1. South Africa: Estimates of support to agricultureZAR million

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for South Africa are: wheat, maize, sunflower, groundnuts, sugar, table grapes, oranges, apples, miland veal, pigmeat, sheepmeat, poultry, eggs.Source: OECD, PSE/CSE Database, 2008.


1995-97 2005-07 2005 2006 20


Total value of consumption (at farm gate) 34 402 86 369 69 998 85 204 103Producer Support Estimate (PSE) 3 991 4 742 4 829 6 163 3


Payments based on input use 62 919 978 772 1Based on variable input use 30 616 695 563

with input constraints 0 0 0 0Based on fixed capital formation 30 285 266 197


with input constraints 0 0 0 0Payments based on current A/An/R/I1, production required 97 192 530 45

Based on Receipts / Income 87 192 530 45Based on Area planted / Animal numbers 10 0 0 0




Miscellaneous payments 0 0 0 0Percentage PSE 11 6 6 7Producer NPC 1.13 1.05 1.05 1.07 1Producer NAC 1.13 1.06 1.07 1.08 1General Services Support Estimate (GSSE) 2 170 5 609 5 302 5 784 5

Research and development 1 797 3 228 3 059 3 312 3Agricultural schools 0 0 0 0Inspection services 146 677 664 684Infrastructure 141 1 348 1 300 1 443 1Marketing and promotion 3 13 12 14Public stockholding 0 0 0 0Miscellaneous 82 343 267 331

GSSE as a share of TSE (%) 35.2 54.2 52.3 48.4 6Consumer Support Estimate (CSE) –3 962 –3 727 –2 999 –6 300 –1

Transfers to producers from consumers –3 692 –3 323 –2 590 –5 523 –1Other transfers from consumers –411 –470 –430 –955Transfers to consumers from taxpayers 0 0 0 0Excess feed cost 141 66 21 178

Percentage CSE –12 –4 –4 –7Consumer NPC 1.14 1.05 1.05 1.08 1Consumer NAC 1.13 1.05 1.04 1.08 1Total Support Estimate (TSE) 6 161 10 351 10 131 11 948 8

Transfers from consumers 4 103 3 794 3 020 6 478 1Transfers from taxpayers 2 470 7 028 7 541 6 425 7Budget revenues –411 –470 –430 –955

Percentage TSE (expressed as share of GDP) 1.00 0.59 0.66 0.69 0GDP deflator 1995-97 = 100 100 201 187 200

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Policy context: South Africa’s agriculture at a glance

Agriculture’s share in the GDP was around 3% in 2005-07. The officially reported

employment in primary agriculture (mainly employment on commercial farms) represents

around 8% of total employment. The increase in Gross Agricultural Output (GAO) was small

in 2006 and negative in 2007. This was mainly due to the sharp reduction in grain

production associated with adverse climatic conditions. The share of agro-food trade in

total exports declined from 9.5% in 2005 to 7% in 2007, while its share in total imports

increased from 4.9% to 5.7%. This development was also due to the relatively high

economic growth over the period under review and increasing domestic consumption of

agro-food products.

Figure 7.3. South Africa: Evolutionand annual changes of agricultura

output, 1995-2007


Figure 7.4. South Africa: Agro-food tra2000-07


Table 7.2. South Africa: Basic economic and agricultural indicators, 2005-07

n.a.: not available.


Source: FAO, FAOSTAT Database, 2008; IMF, International FinancialStatistics, 2008; NDA Abstracts, 2008; SARB, 2008; UN, UN ComtradeDatabase, 2008; World Bank, World Development Indicators, 2008.

2005 2006 2007


GDP (USD billions) 242 255 278

GDP growth (%) 4.9 5.4 5.1




Population (million) 47 47 48


Share in GDP (%)


Industry 28.4 28.6 28.3

Services 66.4 66.0 65.5



Industry 18.0 17.6 17.9

Services 66.6 65.6 64.9

Average share of income spent on food (%) n.a. n.a. 14.4




Agro-food trade balance (USD million) 1 773 964 –97

GAO (% change from previous year) 2.0 0.9 –0.6




Average farm size (ha) n.a. n.a. n.a.

Agricultural land (million ha) 99.6 n.a. n.a.

Arable land per capita (ha) 0.3 n.a. n.a.

Land sown to crops (million ha) 5.7 n.a. n.a.

1995=100 Annual rate of growt

Total GAO annual rate of growth (right scale)Total GAO (left scale)

Livestock (left scale)Crops (left scale)

708090

100110120130140150160

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-1

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 20

USD billion


Agro-food balance (including fish and fish produ

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Policy developments

Main policy objectives and instrumentsDuring the 1990s, a wide range of policy reforms was directed at achieving a stronger

market orientation in agriculture and agro-food. The new Marketing of AgriculturalProducts Act (1996) substantially reduced state intervention in agricultural marketing and

product prices. The main objectives of the new Marketing Act were to provide free market

access for all market participants; promote efficiency of the marketing of agricultural

products; improve opportunities for export earnings; and enhance the viability of the

agricultural sector. Under the Act, the National Agricultural Marketing Council (NAMC) is

the main government body intervening in marketing of agricultural products. The main

objective of the trade policy reform in agriculture was to promote the integration of the

sector into the global economy in order to encourage competition and greater access to

markets, technology and capital.

The main objectives of land reform, which began in 1994, are to redress past injustices,

foster reconciliation and stability, support economic growth, improve household welfare

and alleviate poverty in the rural areas. Land restitution, land redistribution and land

tenure reform are the main elements of the land reform. A broad based Black EconomicEmpowerment Framework for Agriculture (AgriBEE) was introduced in 2006. The objective

of AgriBEE is to eliminate racial discrimination in the agro-food sector through

implementing initiatives that mainstream participation of black South Africans at all levels

of agricultural activity and along the entire value chain. The main implementation

mechanism is the setting of codes of good practice and monitoring in the course of their

implementation.


Price and income support policies

The new Marketing Act applied from 1997 involved much less interference,

regulation and state involvement in agricultural marketing and product prices than was

previously the case. Currently all sectors of agro-food production are deregulated, and

price and income support measures are not applied via domestic markets. To some

extent sugar cane and the sugar market is an exception, although not due to direct state

intervention. The Sugar Agreement of 2000 (between different agents in the sugar

production chain) still permits raw sugar to be exported only through a single-channel

industry arrangement, and allocates quotas to individual producers for sugar sold on the

domestic market.

Input subsidies

Under a diesel refund system, introduced in 2000, farmers receive a refund on the tax

and road accident fund levies paid on diesel fuel. The refund is applied to 80% of the total

eligible purchases used in primary production.

A limited range of subsidies is also provided to assist the transportation of water to

areas suffering from drought and assistance is provided to build water extraction facilities

(boreholes).

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Box 7.1. Food price inflation in South AfricaSituation

Food inflation – Food price inflation peaked in late 2002, and then slowed to a more modest pace befaccelerating again in the first quarter of 2007. The 2002 peak was mainly associated with the significadepreciation of the South African Rand against major international currencies. More recently, food prinflation is associated with the global rise in prices for agricultural products. In 2008, inflation approachlevels last experienced in 2002 (situation in April 2008). Most food product categories have experiencincreasing inflation except sugar, fruit and nuts and meat products. For dairy and egg products, food prinflation was even above the peak of 2002 (Figure 7.5).

High food price inflation in South Africa reflects global market developments, as the country has beclosely integrated with global markets, domestic prices are to a large extend guided by those international markets. For grains (wheat and maize) the price rise was further accelerated by the bharvests in 2006 and 2007 due to adverse conditions.

Figure 7.5. South Africa: Consumer Price Indexes for food and selected food products

Source: Historical indicators: CPI, Statistics South Africa, 2008.statLink 2 http://dx.doi.org/10.1787/531383422

Structure of spending – Household spending patterns for food have important implications for how tgovernment responds to recent trends in food prices. The lowest income groups in South Africa spebetween 30% and 35% of their income on food. Small increases in price therefore have a profound impon how such households maintain food security. Figure 7.6 shows the percentage distribution of annhousehold consumption expenditure by main expenditure group and income deciles. When looking at tbreakdown of spending patterns by the different income groups, it is clear that the lower 3 deciles (30spend more than 30% of their income on food and non-alcoholic beverages; the next 4 deciles spend mthan 20%; and the top 3 deciles spend less than 20% on food and non-alcoholic beverages. There is alsdifference in the structure of household spending in rural and urban areas. In 2005/06, households in ruareas spent on average 25% of their income on food and non-alcoholic beverages, whereas people livingurban areas spent only 12.5% of their household income on these items.

-5

0

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10

15

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25

30

Jan. 0

1

May 01

Sept. 0

1

Jan. 0

2

May 02

Sept. 0

2

Jan. 0

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May 03

Sept. 0

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Jan. 0

4

May 04

Sept. 0

4

Jan. 0

5

May 05

Sept. 0

5

Jan. 0

6

May 06

Sept. 0

6

Jan. 0

7

May 07

Sept. 0

7

Jan. 0

8

Grain products Sugar MeatMilk, cheese and eggs Total food%

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Box 7.1. Food price inflation in South Africa (cont.)

Figure 7.6. South Africa: Percentage distribution of annual household consumption expenditure by expenditure group and income deciles

Source: Income and Expenditure – 2005-06, Statistics South Africa, 2008.statLink 2 http://dx.doi.org/10.1787/531400030

Distribution of poverty – There is also a wide regional difference in the distribution of poverty. Poverates in the nine South African provinces differ significantly, as do those of urban and rural areas. In 2006, poverty rates in the various provinces ranged from 24.9% in Gauteng (province including Johannesbuand Pretoria) and 28.8% in Western Cape (Cape Town area), to 57.6% in Eastern Cape and 64.6% in Limpo(Armstrong et al., 2008). The three provinces with the highest poverty rates (KwaZulu-Natal, Eastern Caand Limpopo) are also relatively populous and hence it should come as no surprise that 60% of the polived in these three provinces. The incidence of poverty is also much higher in the rural areas of SouAfrica. An income-expenditure survey conducted in 2005 (Armstrong et al., 2008) indicates that the poverates for households and individuals in rural areas were 54.2% and 67.7% respectively – more than douthe corresponding rates for urban areas (21.9% and 32.7%).

Policy response

Although many proposals were made to intervene in the markets to address the issue of high food pricthe South African government has not introduced new specific policies and measures. Rather, South Afris using current policy instruments to address the effects of high food prices.

One trade measure affects maize, which is the main staple food for rural and poor populations. In cawhere the world price for maize remains above USD 110 per tonne for more than two weeks, maize is thgranted duty-free import treatment. Duty free imports of maize were actually granted for all of 2007.

A second measure is a food package programme (donation of food) targeted to the poor population. Tprogramme has already been in place for several years, but the government has reacted to the higher foprices by increasing budgetary spending in support of it.

0

5

10

15

20

25

30

35

Lower 2 3 4 5 6 7 8 9 Upper TotalIncome deciles

%

Housing, water, electricity, gas and other fuels Furnishings, household equipment and routine maintenance of the house

Transport Clothing and footwear

Food and non-alcoholic beverages Recreation and culture

Miscellaneous goods and services Communication

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Land reform

Land restitution and land redistribution attempts to rectify the racially skewed access

to land and land ownership in South Africa. This process is supported by the Provision of

Land and Assistance Act (No. 126 of 1993) as amended, which addresses land restitution,

land tenure reform and land redistribution. By the end of the 2006/07 financial year, some

4.7 million hectares were transferred under the various land reform programmes

(redistribution 2.61 million hectares; restitution 1.97 million hectares; tenure reform

0.1 million hectares; and transfer of state land 0.05 million hectares). The land restitution

process is well advanced; 74 805 restitution claims were settled by the end of 2007. However

the 4 891 outstanding restitution claims are the hardest to finalise.

Land redistribution is the main driver to reach the politically set objective to transfer

30% of white-owned agricultural land (around 25 million hectares) by 2014. This objective

cannot be reached without substantially increased budgetary spending to finance land

reform in the coming years (in order to buy the appropriate amount of land from white-

owned farmers under the willing buyer, willing seller scheme).

In the previous years, several programmes were implemented to support the beneficiaries

of land reform, in order to assist them to develop commercially viable businesses.

Post-settlement support is provided to targeted beneficiaries of land reform and other

black farmers who have acquired land through private means via the ComprehensiveAgricultural Support Programme (CASP). The implementation of CASP started in 2004/05,

focusing mainly on providing on and off-farm infrastructure. The implementation of this

programme experienced several problems (DoA, 2007). These include a lack of capacity, such as

a shortage of agricultural economists and engineers, a lack of timely and proper planning, long

procurement procedures and a lack of alignment with other government programmes. Some

of these problems were addressed by increasing the efficiency of service delivery by provincial

departments of agriculture during the second half of 2005/06 and in 2006/07. CASP has reached

53 709 beneficiaries, including 19 518 participating in the land reform project (DoA, 2008b).

The focus of CASP was expanded in 2006/07, with a decision that 70% of its expenditure

should be on land reform projects, 10% on food security projects, 10% on training, 5% on

animal health services, and 5% on marketing. Since 2004/05, ZAR 750 million has been

spent through CASP supporting investment on emerging farms, e.g. boreholes, animal

handling facilities, poultry houses, shearing sheds and irrigation equipment. Benefits from

the programme have come, for example, in the form of improved control of animal

diseases among emerging farmers through the provision of infrastructure, such as dipping

tanks. Other improvements include better veld management and proper breeding practices

as a result of subdividing animal camps.

Micro-agricultural Financial Scheme of South Africa (MAFISA) is a microcredit

scheme providing access to finance for farmers, especially beneficiaries of the land

restitution, redistribution and land tenure reform programmes. The Land Bank

administers MAFISA on behalf of the National Department of Agriculture. Provincial

Departments of Agriculture also play a role by assisting potential clients to complete

application forms and by disseminating information. Credit evaluation committees assess

applications before submission to relevant development finance institutions.

Challenges experienced in the implementation of the scheme have included a lack of

accountability in the evaluation and administration processes, and shortfalls in the

economic or financial experience among extension officers and credit evaluation

committees at provincial level. Under the MAFISA programme, a total of 5 109 farmers

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have been awarded loans so far, and by the end of January 2007, ZAR 41 million had been

spent to finance this scheme. However, the viability of this scheme has been compromised

by problems being currently experienced at the Land Bank.

A government review of its performance in implementing its policies in the land,

agriculture and rural sector has revealed that while visible gains have been made in some

areas, considerably more still needs to be done by the government with its sector partners

to ensure a vibrant agricultural and rural sector. In terms of mechanisms for accelerating

the pace of redistribution applied from 2006/07, three strategic interventions have been

developed and are being implemented.

The Land and Agrarian Reform Project (LARP), implemented in 2006/07, provides a

new framework for delivery and collaboration on land reform and agricultural support. It

intends to accelerate the rate and sustainability of transformation through aligned and

joint action by all involved stakeholders. It creates a delivery paradigm for agricultural and

other support services based upon the concept of “One-Stop Shop” service centres located

close to farming and rural beneficiaries.

The second strategic intervention, Pro-Active Land Acquisition Strategy (PLAS) is a

new instrument designed to accelerate land delivery. In contrast to the previous

application-driven approach, the Department of Agriculture now proactively identifies and

purchases land, and distributes this land in terms of established needs. Prior to purchasing

of any land, the land needs of a specific area are first identified based on an integrated

Development Plan. The state then purchases the land, makes the land farmable, selects

lessees (beneficiaries) and then disposes of the land after an agreed lease period.

The third intervention focuses on sourcing strategic partners (key non-governmental

stakeholders) with the intention to speed up land delivery, and more importantly, ensure

stability of the farms and projects delivered. This involves the formation of partnership at

local, provincial and national level, where stakeholders such as business, labour, commodity

groups and organised agriculture will be given clear roles and responsibility. Memorandums of

Agreement, Service Level Agreements and Agency Agreements will be signed with the targeted

and identified agricultural businesses and organisations. These public-private partnerships

contribute to increasing the pool of skills and expertise that is currently lacking in the public

service. Contracts will be signed with targeted technical experts, companies and businesses.

These three strategies are based on a number of key principles to fast-track land and

agrarian reform while also strengthening the viability of emerging farms and businesses.

These principles are:

● The use of focus areas to concentrate service delivery in order to better exploit synergies

between land redistribution, agricultural production and agri-business development.

● An aligned comprehensive support package to cater for the inherently multisectoral

requirements to make sustainable agricultural production and agri-business

development a success (will also encompass social and other economic services).

● The application of co-operative government by establishing joint planning, budgeting,

approval and implementation procedures between various government departments

and programmes.

● The full utilisation of partnerships in order to exploit the relative strengths and

capacities of the key non-governmental stakeholders.

● Subsidiarity: the decentralisation of decision-making and implementation at the lowest

practical level depending on the specific activity.

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Import measures

Specific and ad valorem tariffs are the main policy measures applied in South Africa’s

import protection for agricultural and food products. While the average level of tariff

protection for agro-food products is low compared with the overall average for all

products, tariff escalation is applied in the agro-food sector, whereby tariffs are in general

lower for primary products than for processed products. As a member of South AfricanCustoms Union (SACU), South Africa applies the common external tariffs established for

all members (other SACU members are Botswana, Lesotho, Namibia and Swaziland). For

most agro-food products, ad valorem tariffs or specific duties (or a combination of both)

are applied. For some products the rate of protection is linked to the development of

world market prices. For maize specific import duties are applied in function of the

development of world market prices. In 2007, there were no duties applied for maize

imports. For sugar, an additional duty level adjustment (ZAR/tonne) is applied based on

a trigger price system.

Tariff quotas exist for a range of agricultural products under the minimum market

access commitments established in the Uruguay Round Agreement on Agriculture, with

in-quota tariffs set at 20% of the bound rates. For some products, e.g. oilseeds,

preferential tariffs are granted to imports from the EU as per the Trade and Development

Cooperation Agreement (TDCA), while imports from Southern Africa Development

Community (SADC) countries outside the SACU are duty free as per the SADC FTA. The

characteristics of the border measures applied to the main agro-food products are

described in Table 7.3.

Table 7.3. South African Customs Union tariff schedule, August 2007

IQTR: in quota tariff rate.Source: National Department of Agriculture.


Tariff line Product descriptionBound rate %

IQTR (20% of

Bound rate)MFN applied rate

Preferential tariffs for EU products

0202 Bovine meat 69 13.8 40% or 240c/kg 40% or 240c/kg

0203 Pork meat 37 7.4 15% or 130c/kg 15% or 130c/kg

0204 Lamb 95 19 40% or 200c/kg 40% or 200c/kg

0204.50 Meat of goats 82 16.4 40% or 200c/kg 40% or 200c/kg

0207 Poultry meat 37 7.4 220c/kg 220c/kg

0401 UHT milk in containers holding 1 litre or less 96 19.2 free free

0403 Yogurt 96 19.2 free free

0405 Butter and dairy spreads 79 15.8 500c/kg with a max of 79% 500c/kg with a max of 79%

0406 Cheese 95 19 500c/kg with a max of 95% 500c/kg with a max of 95%

1001.10 Durum wheat 21 4.2 free free

1001.90 Wheat and meslin 72 14.4 2% 2%

1003.00 Barley 41 8.2 free free

1004.00 Oats 33 6.6 free free

1007.00 Grain sorghum 33 6.6 3% free

1101.00 Wheat or meslin flour 99 19.8 2% 2%

1102.20 Maize (corn) flour 99 19.8 3.437c/kg 3.437c/kg

1201.00 Soya beans, whether or not broken 40 8 8% free

1206.00 Sunflower seeds, whether or not broken 47 9.4 9.4% free

1207.20 Cotton seeds 47 9.4% free

5203.00 Cotton, carded or combed 60 15% 11.25%

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Import measures also consist in the possibility to apply anti-dumping and

countervailing duties. However, those duties were not applied during 2006 and 2007.

Export measuresSince July 1997, when the General Export Incentive Scheme (GEIS) was abolished, no

export subsidies are applied for agro-food products. However, the price pooling regime forsugar applied by the South African Sugar Association (SASA) is effectively subsidisingsugar exports, while the costs are born by local sugar consumers.

Export permits: For those products that need to comply with certain EU or US quotaarrangements, the South African government introduced an export permit system to usethese quotas; the goal is to ensure that small and medium enterprises, as well asdisadvantaged communities get a chance to export under certain quota windows.

Box 7.2. Trade agreements involving South AfricaSouth Africa is a founding member of the Southern African Customs Union (SACU). This is a full custo

union, with a common external tariff. It is the oldest existing customs union in the world. The earlversions of this agreement (1910 and 1969) provided for duty free and quota free movement of goobetween member states while maintaining a common external tariff for non-member states. However, tagreements also provided for restrictions on imports and exports within the customs union, as well as timposition of duties to protect infant industries. These exceptional measures are provided to enamember states, the BLNS in particular, to develop their domestic economies. These have been continuedthe new agreement, which was signed in 2002 and has been in force since 2004. The new agreement setplace a new institutional framework for SACU, although not all the elements of this have been activated yA SACU Tariff Board and Tribunal are planned to be operational by 2009. Under Article 31 of the nagreement, dealing with trade relations with third parties, all SACU member states must approve of anew agreements. All bilateral agreements the SACU countries negotiated prior to the 2002 Agreement cremain in place, but consent must be sought and granted by all member states.

In 1994, South Africa became a member of the Southern African Development Community (SADC).1 TSADC free trade agreement is being implemented between 2000 and 2012. A very important feature of tSADC was the Trade Protocol intended to stimulate trade between member countries through the reductof tariffs, with a view to the launch of a Free Trade Area (FTA). SADC incorporated the principle of asymmeta phase-down of SACU tariffs in five years (by 2005); and those of other SADC countries in 12 years by 20By August 2008, all member states implementing the trade protocol are expected to have zero tariffs on 8of their products. The remaining 15% have to be eliminated by 2012. SACU has completed its tariff phase-ocommitments. The FTA was expected to front-load (2006) its phase-down commitments due to South Africeconomic size. Other member states were provided with a longer grace period to back-load (2008) their phadown commitments. The SADC Free Trade Area was launched in August 2008.

The SADC – EC EPA negotiations – One of the aim of Economic Partnership Agreements (EPA) negotiatiois essentially to replace the non-reciprocal trading preferences that African, Caribbean and Pacific (Acountries have been receiving from the EU (under the Lomé Agreement) with WTO compatible reciprocal ftrade arrangements. The SADC EPA Group currently consists of 7 countries: all the members of SACU, pAngola and Mozambique. For South Africa, the EPA negotiations effectively constitute the review of the TraChapter of the SA/EU Trade Development and Cooperation Agreement (TDCA).2 The implementation of EPbetween the EU together with the ACP countries was envisaged as from 1 January 2008; this however did nhappen for the SADC and many other ACP countries. The EC and SADC EPA members subsequently agreeda two-stage approach to the conclusion of EPAs; i.e. the first stage was to conclude an interim agreement, athereafter the conclusion of a final agreement at a later stage. This was agreed to ensure that the SADC Emembers did not lose preferential access to the EU market after expiry of the Cotonou Agreement 31 December 2007. The Interim SADC-EC Economic Partnership Agreement (IEPA) was initialled by Botswa

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Box 7.2. Trade agreements involving South Africa (cont.)

Lesotho, Swaziland, Namibia and Mozambique towards the end of 2007. South Africa and Angola have not initialled the agreement due to concerns with the Interim agreement text. Namibia has signed, but withunderstanding that it would not commit to any free trade in services in a final agreement. In addition, SAmembers have expressed their opposition to clauses dealing with export taxes,3 circulation of goods, MFavoured Nation status4 and standstill provisions.5

The implementation of EPAs between the EU together with the ACP countries was envisaged as fro1 January 2008. The EC side took the necessary measures as of 1 January 2008 in order to avoid any tradisruption. The process, which will lead to the signature and WTO notification of the Interim SADC EPAongoing in parallel with the negotiations to conclude a region-wide comprehensive SADC EPA, that woueventually include South Africa. The TDCA remains the legal framework for South Africa’s trade with tEU. It is expected that negotiations towards a final EC and SADC EPA agreement will be concluded in tcoming months.

SACU-EFTA Free Trade Agreement: SACU and EFTA concluded a Free Trade Agreement in August 2005. Amember of SACU, South Africa is party to this agreement. To cover agriculture and ensure WTO compatibilthree bilateral agreements on basic agricultural products (within chapters 1 to 24, excluding processagricultural products) were negotiated with each individual EFTA Member State (Switzerland also covLiechtenstein). The agreements will be implemented over a period of ten years after entry into force. In terof the main agreement, SACU will enjoy immediate duty-free access into EFTA for all products covered by tagreement, with the exception of processed agricultural products. In return, SACU will gradually eliminimport duties over a period not exceeding nine years, with different phase-down modalities for differeproducts. SACU did negotiate the right to exclude certain sensitive products and to introduce a clause thwould prevent processed agricultural products that qualify for export subsidies from benefiting fropreferences under this agreement (these would have to trade under Most-Favoured-Nation [MFN] condition

SACU-Mercosur Preferential Trade Agreement: A Preferential Trade Agreement (PTA) was signbetween the Mercado Común del Sur (Mercosur)6 and SACU in December 2004, as a first step towards tcreation of a free trade area. The negotiations took into account the principle of special and differenttreatment for small and lesser-developed economies in Mercosur and SACU. The agreement covered onlnarrow range of agricultural and industrial goods.

The Africa Growth and Opportunity Act (AGOA) is a non-reciprocal programme implemented by tUnited States (US) that provides duty-free and quota-free market access to qualifying sub-Sahara Africcountries. Negotiations towards a comprehensive FTA with the USA started in 2003, but were suspended2006. The process is not likely to be achieved in the near future as both parties, while confirming thcommitment to achieve a mutually beneficial FTA, recognised that a range of substantive issues haarisen in the negotiations that will require detailed examination over the longer term. Following thedevelopments, the two parties agreed in November 2006 to pursue a Trade and Investment CooperatAgreement (TICA) that could possibly lead to a FTA in the longer term.

1. The SADC member countries include: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, MalaMauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

2. The Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union and its MemStates was signed in October 1999 and implemented on 1 January 2000. Under this agreement, a free trade area between two parties will be established by the end of the transition period in 2012. The area covers approximately 90% of total trbetween the two parties (including an important segment of agro-food trade).

3. This provision states that no new export duties on EU goods shall be introduced, or existing export duties increased. WitSACU, Namibia has expressed concerns about the constraints this provision puts on its ability to use export taxes to promdomestic processing. The temporary introduction or increase of such duties is allowed in exceptional circumstances, e.g.infant industry protection, however the EC needs to be consulted on a case-by-case basis.

4. This provision is not found in the TDCA or the EU’s FTAs with Mexico and Chile for example. It requires EPA signatorieextend to the EU any trade concession that they grant in future to a third party as long as such third party is a develocountry or has a one per cent share of world merchandise exports (this would include China, India and Brazil), or is a groupwith a minimum 1.5% share of such exports.

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Bibliography

Armstrong, A., Lekezwa, B. and K. Siebrits (2008), “Poverty in South Africa: A Profile Based on RecentHousehold Surveys”, Stellenbosch Economic Working Papers No. 04/08, University of Stellenbosch,South Africa.

DoA (2007), Annual Report, 2006/07, Department of Agriculture, Pretoria.

DoA (2008a), Abstracts of Agricultural Statistics, Department of Agriculture, Pretoria.

DoA (2008b), The Land and Agrarian Reform Project (LARP): The Concept Document, February 2008,Department of Agriculture, Pretoria.

DLA (2008), Strategic Plan 2008–2011, Department of Land Affairs, Pretoria.

EIU (2008), Country Report: South Africa, Economic Intelligence Unit, London.

Letswalo, J. (2007), “SADC-EC EPA Negotiations” in International TradeProbe, No. 1, December, NationalAgricultural Marketing Council and Department of Agriculture, Pretoria.

Letswalo, J. and L. Rantho (2008a), “SADC EPA Negotiations” in International TradeProbe, No. 4, March,National Agricultural Marketing Council and Department of Agriculture, Pretoria.

Letswalo, J. and L. Rantho (2008b), “SACU and EFTA Free Trade Agreement” in International TradeProbe,No. 4, March, National Agricultural Marketing Council and Department of Agriculture, Pretoria,South Africa.

Nyhodo, B. and A. Jooste (2008), “Southern African Customs Union (SACU) Statistics under AGOA” inInternational TradeProbe, No. 2, January, National Agricultural Marketing Council and Department ofAgriculture, Pretoria.

OECD (2008), OECD Economic Surveys: South Africa, Volume 2008, Issue 15, OECD, Paris.

Rantho, L. (2008), “SADC-EC EPA Negotiations: Latest Developments” in International TradeProbe, No. 9,September, National Agricultural Marketing Council and Department of Agriculture, Pretoria.

STATS SA (2008a), Historical Indicators: CPI, Statistics South Africa, Pretoria.

STATS SA (2008b), Income and Expenditure – 2005/06, Statistics South Africa, Pretoria.

Tswai, L. (2008), “SADC Regional Economic Integration: SADC-FTA Due in 2008” in InternationalTradeProbe, No. 2, January, National Agricultural Marketing Council and Department of Agriculture,Pretoria.

Tswai, L. and S. Legare (2008), “SADC on Course for the Free Trade Area (FTA) Launch” in InternationalTradeProbe, No. 5, April, National Agricultural Marketing Council and Department of Agriculture,Pretoria.

Box 7.2. Trade agreements involving South Africa (cont.)

5. This provision freezes tariffs on all trade between the two parties. In the case of the SADC EPA it is limited to products that be liberalised only. Thus, even if a product is on the ‘exclusion list’, the tariff cannot be raised after the EPA enters into forcesome other EPAs it applies to all products, whether or not products are subject to liberalisation.

6. Mercosur is a customs union comprising of Argentina, Brazil, Paraguay and Uruguay (with Bolivia, Chile, Colombia, EcuaPeru and Venezuela as associate members) that came into effect in December 1994.

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ISBN 978-92-64-05927-6



© OECD 2009

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Chapter 8

Ukraine


● The overall level of producer support is modest, but disguises taxation of export-oriented sectors and considerable protectioimport-competing sectors. Support has shown an upward trend in recent years. This tendency, although interrupted in 2007 to the specific market situation, is an expected consequence of the economic recovery Ukraine saw in recent years. Robust growin the domestic economy and external demand has lifted agricultural prices towards world market levels. Fiscal improvemeresulted in more direct support provided to the sector.

● The composition of producer support is changeable. Market price support, mainly arising from tariff protection, increased2005-06, but in 2007 producers again received, on aggregate, prices below world market levels. Budgetary transfers increasenominal terms, but their relative importance in total producer support shifted following changes in market price support. Mbudgetary support is provided on the basis of commodities produced or variable inputs used, i.e. in ways shown to cresubstantial distortions to producer incentives, and also least efficient in increasing producer income.

● Transfers to support general services to agriculture, in particular research, education, and infrastructure increased in 2007, higher allocations were budgeted for 2008. A state programme for rural development is under preparation. This is commendaas investment in the sector’s longer-term productive capacity is critical for achieving sustained gains from the country’s abundendowment of agricultural resources.

● Agriculture’s potential to contribute to the country’s economic development and become an important supplier in global fmarkets is high. A sound macroeconomic environment is required for sustained agricultural development, and the sector benefited from high economic growth in recent years. However continued political instability creates business uncertainty abfuture developments in the overall economy. This uncertainty has only increased in the context of the current economic financial crisis in Ukraine.

● Progress has recently been made in formulating longer-term agricultural policy strategy, but policy actions often lack cohereas was the case during the recent food price crisis. Export restrictions resulted in substantial revenue foregone in the grain oilseed sectors, while the impact of these measures on curbing food prices is uncertain. In broader terms, recent developmemake it all the more imperative to build an efficient food aid system to avoid recourse to trade restrictions and redadministrative involvement in the food chain. Social goals can be more efficiently addressed by targeted support than by brobased interventions in business.

● The long-awaited accession to the WTO was a major development. The WTO commitments will largely determine the framewfor future agricultural policies and help to make policies more stable. In particular, less room is now left for interventions in tractivity, involving reconsideration of traditional approaches to resolving emerging problems of domestic market supplies.

● WTO commitments also mean more competition from imports in some of Ukraine’s key agricultural sectors. There is therefoneed for stronger policy focus on enhancing the sector’s efficiency. Commitments on domestic support raise issues regardingefficient use of public resources and provide an incentive to concentrate support on longer-term objectives of technologadvancement, sustainable development of agriculture and rural revival.

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Ukraine became a new member of the WTO in 2008. In preparation for the accession,many modifications in Ukrainian legislation were implemented to comply with the WTOrequirements. Border protection was substantially reduced for key agro-food products and thenew tariff schedule based on Ukraine’s WTO commitments was adopted in December 2008.Other issues, particularly those related to the sugar import regime, food safety and qualitystandards, await final decisions. No major changes occurred in domestic policies. Amoratorium on the sale of agricultural land remains in force pending the adoption of broaderland laws. New direct area payments for crops were introduced. Since mid-2007, the policyfocus was on mitigation of food price inflation with recourse to export restrictions, commodityinterventions, and bread price controls. However, these concerns were later overridden by thefinancial and economic crisis. At the end of 2008, the IMF approved a USD 16.4 billion stand-byarrangement for Ukraine.

● Support to producers (%PSE) was 10% in 2005-07,compared to an implicit taxation of 10% in 1995-97.The level of support is considerably below the OECDaverage of 26% in 2005-07.

● The average %PSE for 2005-07, disguises a fall in thelevel of support in 2007 (to 4% from 12% in 2006). Theaggregate market price support became slightlynegative in 2007, reflecting a complex trade offbetween changes in pr ice support acrosscommodities. The bulk of the total PSE consisted ofbudgetary transfers in 2007.

● Most distorting forms of support (based oncommodity output and var iable input use )represented 73% of total PSE in 2005-07.

● Prices received by farmers were on average 4% abovethose observed on the world markets in 2005-07(producer NPC), while they were 11% below suchlevels in 1995-97. Farm receipts in 2005-07 were 11%higher than they would have been at world prices(producer NAC). In contrast, in 1995-97 receipts were5% below the levels producers could realise at worldmarket prices.

● Single Commodity Transfers (SCT) comprised 45% ofthe total PSE in 2005-07. The highest %SCTs were forpoultry, sugar, pigmeat and beef, ranging from 52% to23%.

● As shown by the %CSE, agricultural price supportplaced an implicit tax on consumers of 6% in 2005-07,whereas in 1995-97 consumers were implicitlysubsidised with a positive %CSE of 18%.

● Support for general services to agriculture (GSSE)comprised nearly one quarter of the total support tothe agricultural sector (TSE) in 2005-07. This share isvery unstable, mostly due to variations in the PSE –another key component of total support toagriculture.

● Total support to agriculture as a percentage of GDPamounted to 2.5% in 2005-07, which is high comparedto other emerging economies and compared to theOECD average.


Figure 8.1. Ukraine: PSE level and composition over time


Figure 8.2. Ukraine: Producer SCT by commodity, 2005-07


-8-7-6-5-4-3-2-10123

199

5 1

996 1

997 1

998 1

99920

0020

0120

0220

0320

0420

0520

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MPS and budgetary support, billion USD

-4-3-3-2-2-1-1-

11

% PS



-30 -20 -10 0 10 20 30 40 50 60

SCT as % of PSE

WheatOther grains

MilkMaize

SunflowerEggs

Beef and vealPigmeat

SugarPoultry

MPS SCT as % of PSE

% of commodity gross f

Payments based on outputOther SCT

Other commodities

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27860

285936499124624069294

0774

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682685

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Table 8.1. Ukraine: Estimates of support to agricultureUAH million

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.1. A (area planted) / An (animal numbers) / R (receipts) / I (income).For the definition of OECD indicators of support to agriculture, see Annex A.1. Market price support is net of producer levies andfeed cost. MPS commodities for Ukraine are: wheat, maize, other grains (barley, rye and oats), sugar, oilseeds (sunflower), milk, beveal, pigmeat, poultry and eggs.Source: OECD, PSE/CSE Database, 2008.


1995-97 2005-07 2005 2006 20


Total value of consumption (at farm gate) 22 060 97 917 84 115 93 352 116Producer Support Estimate (PSE) –1 647 10 698 12 482 13 676 5

Support based on commodity output –2 722 5 260 8 305 7 973 -Market Price Support –2 739 2 566 6 091 5 730 –4Payments based on output 16 2 694 2 214 2 243 3

Payments based on input use 551 3 179 2 685 2 783 4Based on variable input use 391 2 588 2 115 2 356 3

with input constraints 0 0 0 0Based on fixed capital formation 139 591 570 427


with input constraints 0 0 0 0Payments based on current A/An/R/I,1 production required 525 2 259 1 491 2 920 2

Based on Receipts / Income 525 1 681 1 425 1 938 1Based on Area planted / Animal numbers 0 578 66 982




Miscellaneous payments 0 0 0 0Percentage PSE –10 10 13 12Producer NPC 0.89 1.04 1.09 1.07 0Producer NAC 0.95 1.11 1.15 1.14 1General Services Support Estimate (GSSE) 521 3 287 3 202 2 937 3

Research and development 52 236 195 205Agricultural schools 78 801 851 667Inspection services 40 705 786 587Infrastructure 329 995 867 956 1Marketing and promotion 5 7 7 8Public stockholding 0 434 431 405Miscellaneous 17 108 65 110

GSSE as a share of TSE (%) –46.3 23.5 20.4 17.7 3Consumer Support Estimate (CSE) 3 062 –4 697 –8 667 –7 397 1

Transfers to producers from consumers 3 291 –1 843 –6 396 –5 513 6Other transfers from consumers 117 –1 532 –1 763 –1 391 –1Transfers to consumers from taxpayers 0 0 0 0Excess feed cost –346 –1 322 –508 –492 –2

Percentage CSE 18 –6 –10 –8Consumer NPC 0.88 1.05 1.11 1.08 0Consumer NAC 0.89 1.06 1.11 1.09 0Total Support Estimate (TSE) –1 126 13 984 15 683 16 613 9

Transfers from consumers –3 408 3 375 8 159 6 905 –4Transfers from taxpayers 2 166 12 142 9 287 11 100 16Budget revenues 117 –1 532 –1 763 –1 391 –1

Percentage TSE (expressed as share of GDP) –1.47 2.47 3.55 3.05 1GDP deflator 1995-97 = 100 100 474 401 461

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Policy context: Ukraine’s agriculture at a glance

Ukraine is richly endowed with resources for agriculture. The sector contributed 7.6%

to GDP and 16.7% to total employment in 2007. Agro-food items constitute the second

largest group of Ukraine’s merchandise exports. High economic growth in recent years

favoured the sector’s recovery. However, the performance of agriculture remains unstable,

with large annual fluctuations in crop production. Commercial large-scale production

provides around one-third of total agricultural output and the remaining output comes

from small family-type farms and tiny household plots. Around one-third of the country’s

population lives in rural areas, which are characterised by high poverty levels and a rapidly

ageing population. Food accounted for 57% of households’ expenditures in 2007.

Figure 8.3. Ukraine: Evolution and annuchanges of agricultural output, 1995-20


Figure 8.4. Ukraine: Agro-food trade1996-2007


Table 8.2. Ukraine: Basic economic and agricultural indicators, 2005-07

n.a.: not available.1. The number of agricultural enterprises and individual farms used toestimate the average land per farm includes only units with agriculturalland (around 90% of total number).


Source: State Statistics Committee of Ukraine, 2008; IMF, InternationalFinancial Statistics, 2008; UN, UN Comtrade Database, 2008; World Bank,World Development Indicators, 2008.

2005 2006 2007

Basic economic indicatorsGDP (USD billions) 83 107 141GDP growth (%) 2.6 7.4 7.9GDP per capita, PPP (USD) 5 583 6 224 6 916Inflation (annual average, %) 13.5 9.1 12.8Exchange rate (annual average, local currency per USD)

5.1 5.1 5.1

Population (million) 47.1 46.8 46.4Population in rural areas (%) 32.3 32.1 31.9Share in GDP (%)

Agriculture 10.4 8.6 7.6Industry and construction 31.2 32.2 33.2Services 58.4 59.2 59.4

Share in employment (%)Agriculture 19.4 17.6 16.7Industry and construction 24.2 24.2 23.9Services 56.4 58.2 59.4

Average share of income spent on food (%) 58.0 54.2 57.2Basic agricultural indicatorsAgro-food exports (% of total exports) 13.1 12.5 12.9Agro-food imports (% of total imports) 7.7 7.2 6.9Agro-food trade balance (USD million) 1 704 1 567 2 150GAO (% change from previous year) 0.1 2.5 –6.5Total cereal production (million tonnes) 38.0 34.3 29.3Total meat production (million tonnes) 1.6 1.7 1.9Natural resources and farm structureAgricultural land per farm1 (ha):Agricultural enterprises n.a n.a 2 080.0Small family-type farms n.a n.a 92.0Household plots n.a n.a 1.2Agricultural land (million ha) 41.7 41.7 41.7Arable land per capita (ha) 0.8 0.8 0.8Land sown to crops (million ha) 26.0 25.9 26.1

60

80

100

120

140

160

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1995 =100

Total GAO annual rate of growth (right scale)

Total GAO (left scale)Crops (left scale)Livestock (left scale)

Annual rate of growth,

0

1

2

3

4

5

6

7

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

USD billion

Agro-food exports (including fish and fish products)Agro-food imports (including fish and fish products)


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Policy developments

Main policy objectives and instruments

The objectives of agricultural policy in Ukraine were most recently formulated in the

2005 Law on Basic Principles of the State Agrarian Policy up to 2015, which include: i) food

security, ii) efficiency and international competitiveness of the agricultural sector, and

iii) integrated development of rural areas and improvement of social conditions of rural

people. The objective of food security is set out largely in the context of low incomes in

Ukraine, with a large proportion of the population being economically vulnerable. The

efficiency and competitiveness objective is closely linked with Ukraine's accession to the

WTO. Based on the above mentioned law, a State Targeted Programme for Development

of the Ukrainian Countryside up to 2015 was prepared in 2007. The Programme translates

policy objectives into specific tasks and identifies financing needs and sources, which

include government, private and international financing. While it does not have the

status of an obligatory budget plan, the Programme is a first attempt at developing a co-

ordinated approach to the formulation and implementation of agricultural policy

objectives. A policy focus on rural development was strengthened recently with the

preparation in 2008 of the advanced draft National Programme for Rural Development

until 2015.

Another key policy document is the Law on State Support to Agriculture (2004), which

identifies the main agricultural support instruments and programmes. This is not a

package law, however, and some support activities are stipulated in other legislative acts.

Ukraine’s principal policy instruments are output payments (mainly for livestock

products) and input subsidies. A large part of this support is implemented through

allowing agricultural producers and, until recently, food processors, to retain their due VAT

payments. Over recent years, Ukraine has began introducing area and headage payments,

the latter aiming to improve the animal stock and increase animal numbers. Agricultural

producers are granted credit and tax preferences. Ukraine uses a range of market price

support instruments. These include tariff protection and non-tariff trade regulation, as

well as various forms of domestic policy measures, including minimum purchase prices,

direct state purchasing and loans against pledged grain.



Ukraine implements a variety of domestic measures affecting prices in key agricultural

markets. The 2004 Law on State Support to Agriculture stipulates that commodities such as

grains, oilseeds and livestock products are the “objects of state price regulation”. The

government sets official minimum prices for these commodities which may be applied in

state market interventions, and in the case of livestock products, for defining the levels of per

tonne subsidies. The minimum prices are also meant to serve as a floor-price reference for

private market operators. The state agency Agrarian Fund, created in 2005, is responsible for

the implementation of market interventions through direct spot purchases into the State Food

Reserve, forward-contracting and lending against pledged commodities (grains).

The grain sector traditionally remains in the government focus. Most important are

measures affecting grain trade (discussed below), but there are also permanent domestic

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Box 8.1. Food price inflation in Ukraine

Inflation accelerated sharply in the second half of 2007, reaching the highest rates observed since2000. Prices continued rising even more strongly in 2008 (Figure 8.5). Food prices registered thehighest inflation among the major consumption items. At the end of 2007, they were 24% above theend-2006 level and in June 2008, 53% above that level (an increase of 23% between January andJune 2008). Only in the second half of 2008 did inflation start to fall.

As elsewhere, food price inflation in Ukraine was driven by strong price rises on world food andenergy markets. In addition, Ukraine suffered a poor grain harvest in the 2007-08 season, whichhad repercussions on the livestock sector and was another supply side factor fuelling inflation.These supply factors were combined with developments on the demand side that were largelyspecific to Ukraine. Robust economic growth supported an increase in private consumption. Thelatter was further boosted by an expansion of social spending. Minimum wages were increasedseveral times over 2007 and 2008. The government increased pensions and other social transfers,and began compensating small savers for losses of the Soviet-period deposits in the Savings Bankof Ukraine. At the same time, the National Bank of Ukraine made monetary injections to preventthe appreciation of the hryvnia against the US dollar. Political instability, and a series of pre-termelections to the Verkhovna Rada (the Parliament) and local councils created inflationaryexpectations. These factors specific to Ukraine explain in part why the country saw the highestfood inflation in the CIS (Commonwealth of Independent States) region.

Figure 8.5. Ukraine: Consumer price indices in 2007-08December 2006 = 100

Source: State Committee on Statistics of Ukraine, 2008.statLink 2 http://dx.doi.org/10.1787/531515122576

100

110

120

130

140

150

160

% Food and non-alcoholic beveragesTotal CPI

Jan.

07

Feb.

07

Mar. 07

Apr. 07

May 07

June

07

July

07

Aug. 0

7

Sept. 0

7

Oct. 07

Nov. 0

7

Dec. 0

7

Jan.

08

Feb.

08

Mar. 08

Apr. 08

May 08

June

08

July

08

Aug. 0

8

Sept. 0

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Box 8.1. Food price inflation in Ukraine (cont.)

With almost one quarter of the population living below the poverty line and food taking up 57%of households’ expenditures, the social and political cost of soaring food prices is very high inUkraine. All through 2007 and 2008, the Ukrainian government implemented a series of actions torestrain price rises for basic foodstuffs, which included:

● Export restrictions: grain export quotas were in place for most of 2007 and in the first half of2008; for wheat produced in the 2007/08 season the quota virtually meant an export ban. Exportsof oilseeds in 2008 were limited as well for some time (more detail in the section on exportpolicy).

● Import incentives: state trading companies received preferences in importing foodstuffs –importers of meat, sugar and sugar confectionery were granted deferral on the payment ofimport duties (the regulation, however, remained in force only for two weeks and was ruled outby a presidential Decree as being in contradiction of the Law of Ukraine On State Budget for 2008prohibiting deferral of tax liabilities).

● Commodity interventions: between October and November 2007, the government released somelow-cost flour milled from the previous harvest; in 2008, 2 000 tonnes of sugar were released onregional markets.

● Administrative controls on bread prices: the regulation concerned “socially important” types ofbread and consisted of limiting processors’ mark-ups and wholesale prices for wheat and rye flourand selected bread products; bread price control was complemented by low-cost supplies of grainsand flour from the State Reserve to main milling and bakery plants; inspections to controlcompliance with the price regime were intensified (during the first half of 2008, 8 900 inspectionswere carried out by price control bodies and irregularities were found in 57% of inspected entities).

● Supplies to processors from state stocks: in 2007 and 2008 the Agrarian Fund (see the main text) andthe State Reserve were allowed to sell as much grain as was required to meet in-coming regionaldemands for flour-milling; both in 2007 and 2008, the two agencies also supplied meat from theirstocks to meat processors.

● State supplies to retailers: the State Reserve made low-cost supplies of poultry to retail networks inorder to undercut high retail prices for this product.

● Voluntary price restraints: in the spring of 2008, memoranda of understanding were signedbetween the government and food retailers across Ukraine; the latter undertook to limit retailmark-ups on a list of “socially important foodstuffs” (to 10% of the wholesale price), but in turnthe existing system of discount cards for socially important foodstuffs was suspended in retailchains involved.

The wide range of government actions notwithstanding, all basic food groups registered strong pricerises (Figure 8.6). In order to understand the degree to which government’s actions helped to slowdown the food price inflation, comprehensive analysis is required. However, it is clear that the effortsto cap food prices were counteracted by monetary expansion, which in turn was partly driven by theobjective of easing social difficulties. There are also obvious side effects of some anti-inflationmeasures on the agro-food sector. Export quotas involved substantial foregone revenue in the grainand oilseed sectors, and consequently in Ukraine’s total export earnings. According to the World Bank,around USD 1.8 billion were foregone in exports of wheat and barley, and USD 0.66 billion in exports ofsunflower seeds (World Bank, 2008). The export restrictions also resulted in higher stocks being carriedover into the next season. This contributed to excess supplies of grain with the arrival of the large newharvest. The situation in the grain market turned sharply around at the beginning of the 2008/09season, when the government faced a problem of withdrawing part of the supplies to slow-down thesteep fall in grain prices.

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interventions. However, since the introduction of the current grain intervention system the

scale of interventions in their various forms has been limited, not exceeding 2% of seasonal

grain consumption and the official minimum prices for grain remained below market price

levels.

In 2006 and 2007, the Agrarian Fund made spot purchases of grain into the State Food

Reserve and concluded forward contracts with grain producers. These purchases were

made at average prices registered in the organised wholesale markets, such as Agrarian

Exchange and accredited regional commodity exchanges. The Fund also implemented

grain pledge operations in 2006. Their mechanism is similar to the US commodity loans,

with the loan rate set at 80% of the official minimum price. The Agrarian Fund spent on

aggregate UAH 290 million (USD 57 million) in 2006 and UAH 547 million (USD 108 million)

in 2007 for grain interventions.

In anticipation of an oversupply in the grain market in 2008/09, the government more

than doubled the budget allocation for intervention operations to UAH 1.25 billion

(USD 258 million). It is foreseen to withdraw 803 000 tonnes of grain from the market

through pledge mechanism. Local analysts, however, estimate that in order to stabilise

prices in 2008/09, at least 3 million tonnes needs to be withdrawn, mainly feed wheat and

barley (in 2006/07 and 2007/08 the Agrarian Fund purchased primarily milling wheat). In

2006, the Fund bought 175 000 tonnes of grain for the State Food Reserve and issued pledge

loans against 265 000 tonnes. In 2007, only purchases for the State Food Reserve were

carried out amounting to 425 000 tonnes.

Box 8.1. Food price inflation in Ukraine (cont.)

Figure 8.6. Ukraine: Retail price growth for key food itemsCumulative growth rate between January 2007 and September 2008

Source: State Committee on Statistics of Ukraine, 2008.statLink 2 http://dx.doi.org/10.1787/531542463702

-20

0

20

40

80

60

100

120

Bread and bakeryproducts

Meat and meatproducts

Milk Eggs Butter Vegetable oil Potatoes Sugar

%

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Ukraine maintains a sugar quota regime, established in 2000, whereby a national

marketing quota for sugar produced from sugar beet is set annually, as well as minimum

in-quota prices for beet and sugar. The main change in the current system is that starting

from 2008, producers supplying sugar beet under quota A, in addition to minimum prices,

will receive direct payments, amounting to UAH 750 (USD 155) per sown hectare. Quota A

includes sugar produced for domestic market, quota B sugar destined outside Ukraine

under intergovernmental agreements, as well as for replenishment of quota A, while

quota C covers exported sugar. With Ukraine’s accession to the WTO, quota B and C were

eliminated as quantitative restrictions on export.

Minimum prices are also announced for livestock products such as raw milk, milk cream,

cattle, live pigs, poultry and eggs. There was an attempt in 2005 and 2006 to make the

minimum prices obligatory for raw milk by imposing a requirement on processors to apply

these prices to milk deliveries by agricultural enterprises. The minimum prices were set at

levels double those processors paid for milk supplied by small farms and households. The

requirement was finally disregarded by the industry, not least due to lack of an effective

enforcement mechanism. In 2007 and 2008, the government continued announcing minimum

prices for livestock products, but only as “recommended” to processors. Effectively, these

prices are used as a basis for calculation of per tonne payments for livestock products.

A large part of direct support is destined to the livestock sector with the stated

objective of increasing animal production from its current historically low levels. Cattle,

pigs and poultry breeders receive direct payments per tonne of animals delivered for

processing. The total amount of these payments more than doubled in 2007 to reach

UAH 1.17 billion (USD 232 million) compared to UAH 534 million (USD 106 million) in 2006.

In addition, up until late 2008, Ukrainian milk and meat producers received price top-ups

from processors. The latter were obliged to “re-direct” their VAT payments to agricultural

suppliers instead of transferring them to the state budget. In this case the subsidy was

provided not through actual budgetary outlays but at the cost of budgetary revenue

foregone. Other specific per tonne payments are also provided to producers of sheep, wool,

organic milk, honey, and silkworms.

Payments based on area and animal numbers are relatively small in terms of their

share in the budgetary transfers to producers. However, they are gaining prominence with

the emergence of new payments. In 2003, payments were introduced per head of breeding

cow and pedigree cow added to existing herds above an established minimum herd size.

Payments per pedigree cow are also available to farms which have no cattle but which

purchase enough pedigree animals to set up milk or meat operations. Similar types of

payments are provided for breeding ewes and yearling sheep. The aggregate sum of per

head payments for milk and meat cows almost doubled in 2007 (to UAH 94 million or

USD 19 million), while payments for sheep remained at the previous year level

(UAH 15 million or USD 3 million).

In 2006, per hectare payments were introduced for grain, rapeseed, hop and flax

producers. They amounted to UAH 965 million (USD 191 million) in 2006 and UAH 575 million

(USD 114 million) in 2007, with the bulk of financing directed to wheat growers.

Credit concessions and input subsidies

A concessional credit programme started in 2000 with the basic objective of enabling large

farms, which suffered chronic debt, to purchase inputs for sowing and harvesting. Since then

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the programme has been extended to include investment credit. Currently, more than

100 accredited commercial banks provide concessional loans at interest rates subsidised by the

government. In 2006, 10 percentage points of the annual interest rate for short-term loans was

subsidised (7 percentage points if loans were provided in foreign currency); for the long-term

loans, from 12 to 14 percentage points of the annual interest rate was subsidised (from 8 to

9 percentage points for loans in foreign currency). Lower or higher rates of subsidy depend on

the purpose of borrowing. In 2007, conditions for short-term credit were changed and the

subsidy was set equal to a discount rate of the National Bank of Ukraine for loans in domestic

currency (6 percentage points for loans in foreign currency).

In 2006, around one-quarter of the loans received by agricultural enterprises were with

subsidised interest; in 2007, this share reached 53% (Table 8.3). The government spent

UAH 320 million (USD 63 million) for interest rate subsidies in 2006 and almost doubled

this spending in 2007 to UAH 607 million (USD 120 million). Due to adverse weather

conditions in 2007, around 2% of outstanding concessional loans were prolonged in order

to ease financial difficulties in the sector. Some of the 11 500 agricultural enterprises

registered as affected by drought were also granted a deferral on tax payments.

Ukrainian producers receive direct budgetary subsidies for a variety of purchasedinputs, such as electricity and fuel used for irrigation, domestically produced fertilisers, andseeds. Producers benefit from partial reimbursement on crop insurance premiums. Thegovernment also covers 30% of the purchase value of technologically advanced localmachinery. The budgetary funding for this programme has been increasing steadily since itsintroduction in 2002 (except in 2006) to reach UAH 131 million (USD 26 million) in 2007.Financial support to seed production, development of pedigree breeding and biotechnologiesis provided under special programmes targeted to improve the quality of agricultural plantsand animal stock. In 2007, UAH 198 million (USD 39 million) was allocated for theseprogrammes, and a substantial increase in financing, mostly for improvements in the livestocksector, was foreseen in 2008. Budgetary allocations are also directed to farms operating inunfavourable natural and climatic conditions (such as excessive dampness, short vegetationperiod, floods, soil washing, severe conditions of winter crops wintering, and drought).However, compared to all described budgetary payments, the most significant policy measurefor reducing agricultural input costs is a special VAT regime accorded to agriculturalenterprises.

Tax concessions

Agricultural producers are enabled to retain (“accumulate”) VAT payments on

agricultural goods they produce provided these accumulations are used to purchase inputs.

Table 8.3. Ukraine: Credit received by agricultural enterprises in 2006-07

Source: Ministry of Agrarian Policy of Ukraine.statLink 2 http://dx.doi.org/10.1787/532361438451

2006 2007 2006 2007

UAH billion USD billion

Total credit received 12.7 14.6 2.5 2.9of which:with subsidised interest rates 3.2 7.8 0.6 1.5

of which:short-term loans 0.7 5.5 0.1 1.1long-term loans 2.5 2.3 0.5 0.5

Total interest rate compensation 0.32 0.61 0.06 0.12

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At the time of introduction in 1999, this measure was implemented as a way of

compensating producers for arrears in payments, which occurred due to the budgetary

deficit. The VAT accumulations have since become the most important form of input

subsidy, accounting for over two-thirds of transfers through all programmes related to

reduction of input costs. It should be noted that until November 2008 this regime did not

apply to milk and livestock, as the VAT rate for these farm products was set at zero and

therefore primary producers did not accumulate VAT. Instead, as discussed above, they

received price top-ups from processors. The latter were required to accumulate the

20% VAT due on products processed from milk and meat, and pass this on to supplying

producers.

During the process of Ukraine’s WTO accession negotiations, the compliance of these

VAT policies with Article III of GATT was questioned. This Article states that imported

goods should be accorded tax treatment no less favourable than similar local goods. The

negotiating parties finally agreed that the use of VAT accumulations for input purchase

was not in violation of this principle. However, the VAT regime for domestically processed

milk and meat products was recognised as violating the GATT, since the fact that domestic

processors buy raw milk and meat with a zero VAT effectively results in preferential

treatment of domestic compared to imported products. The regime of VAT accumulation

for primary products (initially to be effective only until January 2009) has been recently

prolonged. According to the Anti-crisis Law of October 31, 2008, this regime has been also

extended to milk and meat and replaced the previous VAT regime for these products

involving re-direction of tax from processors.

Agricultural enterprises are eligible for a fixed agricultural tax, which is set as a

proportion of the agricultural land value. The tax was introduced in 1998, and replaced a

number of taxes to which agricultural enterprises were subjected as business entities,

including income and land taxes. The agricultural tax was intended to reduce producer tax

burden in order to resolve the situation of chronic tax arrears in agriculture. The tax was

originally enacted for the period up to 31 December 2009, and currently several proposals

are being discussed: i) extending the current regime for an indefinite period (provision

currently included in the Draft Tax Code of Ukraine); ii) substituting the fixed agricultural

tax with both land and income taxes (proposal by the Ministry of Agrarian Policy); and

iii) establishing only a land tax with an income tax rate set at zero (proposal by a group of

independent experts). No official decision about the future of the agricultural tax has been

announced to date.

Policies supporting biofuel production and use

In 2006, the government approved a programme of biodiesel production, which sets a

goal of constructing at least 20 plants by 2010 with output between 5 000 and

100 000 tonnes per year and aggregate annual capacity of at least 623 000 tonnes of

biodiesel. It is planned to allocate UAH 70 million (USD 14 million) for this programme by

2011, which is to be complemented by UAH 8.8 billion (USD 1.8 billion) of private funds

from national and foreign investors.

However, no budgetary spending to support activities related to biofuel production

was made in 2006-08, including UAH 26 million (USD 5 million) earmarked for 2007 for

reconstruction of biofuel distilleries. At the same time, the government has developed a list

of agricultural enterprises that may be involved in production of raw materials for biofuel

and determined the raw materials capacity required for 2008 and onwards. In addition,

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draft legislation was prepared to encourage domestic biofuel use. A draft Law on Support

to Utilisation of Biofuel (December 2007) incorporates provisions on obligatory use of

biofuel for production of conventional fuels; preferential excise tax rates for blended

gasoline; abolition of the state monopoly in bioethanol production; simplification of

registration procedures and licensing for biofuel production; and improvement of

environmental standards for fossil fuels. Twenty-eight state standards related to the

production and consumption of diesel biofuel, biogas and solid biofuel, are currently being

harmonised with EU standards.

Although Ukraine has important potential for production of biofuel crops, local

agribusiness is currently oriented towards supplying raw material to countries with

functioning biofuel capacities, notably the European Union.

Farm structure and land reform

The current farm structure in Ukraine combines 14 926 large-scale agricultural

enterprises with an average agricultural land area of 2 080 hectares; 42 932 small family-

type farms operating on 92 hectares on average; and 5.4 million households, each

disposing of approximately 1.2 hectares of agricultural land and producing primarily for

own consumption. Commercial large-scale production experienced a significant contraction

in 1990 and contributed only 39% to total agricultural output in 2006. The remaining

61% comes from small family-type farms and rural households. There is, nevertheless

an active process of land consolidation, in particular, through the development of

vertically integrated “agro-holdings”, first of all in the export-oriented grain and oilseeds

sectors.

A ban on the sale of agricultural land in Ukraine, originally imposed until 1 January

2008, was extended for an indefinite period in late 2007. A change from this status quo does

not seem to be perceived as urgent by agribusiness, rural population or the general public.

This may partly be explained by the existence of an active rental market for agricultural

land. Further decisions on the sale of agricultural land are conditional on the adoption of

several important land laws, including the Law on Land Market and Law on State Land

Cadastre. The latter Law was adopted by the Verkhovna Rada on 20 March 2007, but was

not ratified by the President on the grounds that it does not yet contain important

provisions such as creation of a nation-wide automated state cadastre system and

mandatory registration of land in this system; that the Law does not provide clear

delineation of authority between the central and local levels; and some other issues. These

key land documents therefore have not yet reached the final stage of enactment, and it is

more likely that in the foreseeable future attention of the Ukrainian parliamentarians will

be focussed on far more pressing economic and political issues. It is notable, however, that

the Memorandum between the IMF and the Ukrainian Government on anti-crisis

assistance to Ukraine (October 2008) highlighted “creation of the functioning land market”

among the required structural measures.

According to official information, the process of formal registration of ownership

rights of agricultural land holders is close to completion. As of 1 January, 2008, 99% of the

6.9 million people who received the right to own agricultural land in the process of

privatisation of former state and collective farms, obtained official certificates confirming

their ownership rights. Ninety-one per cent of certificate holders also received land

property acts with physical delimitation of the parcels owned. The fact that many of the

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new owners who emerged from the land reform had their plots physically delimited

contributed to the development of the land rental market in Ukraine.

Agro-environmental policies

Agro-environmental measures in Ukraine are focussed on the protection and rational

utilisation of agricultural land. In 2006 and 2007, agrochemical certification of agricultural

land was carried out with the objective of improving control over changing indices of soil

fertility and pollution with toxic substances and radio nuclides. This work permitted the

development of recommendations on the rational utilisation of fertilisers, liming and

application of gypsum to soil.

Agricultural enterprises benefit from direct support for the fundamental

improvement of soils, which includes subsidies for the application of lime and gypsum to

acidic and saline soils. Financial support is also provided to agricultural enterprises

operating in unfavourable climate conditions, for example mountainous areas and

marshy woodlands.


The major development was Ukraine becoming the 152nd member of the WTO.

After 15 years of negotiation, the WTO General Council approved Ukraine’s “entrance

package” on 5 February 2008 and Verkhovna Rada ratified it on 10 April 2008. Intense

legislative activity preceded the accession in order to bring Ukrainian laws in conformity

with the WTO requirements. Between 2005 and 2008, 55 national laws were adopted, of

which 21 concern agriculture. Several other laws need to be adopted to fulfill Ukraine’s

obligations, all of them related to agro-food issues. This concerns sugar import regime;

national food safety and quality standards; and veterinary medicine.

As part of its WTO membership commitments, Ukraine will implement scheduled

import tariff reductions, eliminate specific tariffs and maintain only ad valorem rates. It

agreed to apply no other duties and charges beyond ordinary customs duties and the

standard safeguard measures. No export subsidies will be used, the existing export duties

will be lowered, and obligatory minimum export prices eliminated. Ukraine also accepted

a limit of USD 0.6 billion on trade distorting support (Box 8.2).

Import measures

Prior to 2005, Ukraine maintained high tariff protection for the majority of

agricultural goods. However, as the WTO negotiations intensified, it implemented

important cuts in import duties (Figure 8.7). Upon accession, Ukraine has to bring

customs duties into compliance with its schedule on tariff commitments. These

changes can only be implemented in Ukraine by means of law, a process that has

proved to be complicated. The original draft law on changes to the Law of Ukraine ‘On

Customs Tariff of Ukraine’ submitted by the government was rejected by the Verkhovna

Rada. The subsequent version, prepared by the group of parliamentarians, was vetoed

by the President on the grounds that tariff schedules set out for several goods did not

comply with the WTO agreement. Pending the ratification of this Law, provisional

import duties were applied from 16 May 2008, the official date of accession to the WTO,

to December 2008 when the Verkhovna Rada finally adopted amendments to the

Customs Tariff.

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Box 8.2. Ukraine’s WTO commitments in agriculture

Tariff bindings: Ukraine will have its customs duties capped at rates ranging between 0% and 50% (bourates). Some bindings involve reductions phased in over a period up to 2013. Ukraine’s average tabindings are 10.66% for agricultural products and 4.95% for industrial goods. The highest tariffs Ukramay apply are on items such as sugar (50%) and sunflower seed oil (30%). Ukraine has agreed not to apany “other duties and charges” – beyond its ordinary customs duties. Ukraine will completely apply valorem import duties after the accession to the WTO, with the exception of goods subject to excise (wine, liqueur and vodka and tobacco products).

Tariff Rate Quota (TRQ): Ukraine will open a tariff quota for only one agricultural good - raw cane su(260 000 tonnes annually, and increasing to 267 000 tonnes by 2010, at 2% tariff). The over-quota tariff wbe 50%. This quota will be administered on a first-come first-served basis within three years of accessio

Special safeguard measures: Ukraine assumes the responsibility not to apply provisions of Article 5the Agreement on Agriculture of the WTO regarding special safeguard measures.

Domestic support: Ukraine negotiated an Aggregate Measurement of Support (AMS) of UAH 3.04 billi(approximately USD 628 million) on the 2004-06 base period. As with all WTO members, Ukraine will hano spending limits on domestic support programmes that have no or minimal impact on trade, providthese programmes meet the criteria laid down in the Agreement on Agriculture. Ukraine did not negotiSpecial and Differential Treatment measures.

Export competition: Ukraine has agreed not to subsidise exports.Sanitary and phytosanitary (SPS) measures: Ukraine will comply with the SPS agreement up

accession and will streamline the responsibilities of its supervisory and control bodies in the SPS arUkraine will not block imports of meat and meat products treated with hormones.

Technical Barriers to Trade (TBT): Ukraine will comply with the TBT agreement upon accession. Ukrawill give priority to international standards over regional and other national ones. All national and regiostandards will be voluntary, except those referred to in technical regulations intended to protect natiosecurity interests, prevent deceptive practices, protect the life and health of people, animals or plants,well as protect the environment. By 30 December 2011, all of Ukraine’s technical regulations will be bason the relevant international standards. Ukraine will reduce further the number of products subjectmandatory third party certification and will notify the revised list to the WTO by 31 January 2012.

Internal taxes (VAT and excise tax): Domestic taxes will be applied in a non-discriminatory mannerimports from WTO members and to domestically produced goods.

Pricing policies: Price controls will be applied in accordance with WTO principles and will take inaccount the interest of exporting WTO members. Upon accession, Ukraine will not apply mandatominimum prices on imported products.

Quantitative import restrictions, import licensing: Upon accession, Ukraine will eliminate and nintroduce, re-introduce or apply quantitative restrictions on imports or other non-tariff measures thcould not be justified under the WTO Agreement. Ukraine will implement its import licensing proceduin conformity with the WTO Agreement.

Export restrictions: From the date of accession, such measures, including export licensing requiremenwill be applied in conformity with WTO provisions. Ukraine will remove current export restrictions grains, as from the date of accession.

Export duties: Ukraine will reduce its export duties on oilseeds, live cattle and animal skins. From tdate of accession Ukraine will not apply any obligatory minimum export prices.

Trading rights (the right to import and export): Registration fees for pesticides and agricultural chemicalswell as licensing fees for the import and export of alcoholic beverages and tobacco products, will becompliance with WTO requirements and will be brought to the level of the cost of services provided.

State-owned enterprises: Upon accession, Ukraine’s laws governing trading activities of state-ownenterprises will fully conform to the WTO provisions. All state-owned enterprises will operate oncommercial basis. Within one year of accession, Ukraine will notify and provide information on tactivities of these companies to the WTO.

Source: MEU, 2008.

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Transition to import tariffs agreed within the WTO framework involves a considerable

reduction in protection for some of Ukraine’s key agricultural goods (Table 8.4). In particular,

the pigmeat, poultry and sugar sectors will be exposed to stronger import competition. Other

sectors are export-oriented and will likely see only small impacts from changes in import

tariffs.

Until 2004, Ukraine applied an import tariff rate quota (TRQ) for raw sugar. A substantial

tightening of the quota regime in 2004 contributed to a sharp fall in raw sugar imports and a

rise in domestic wholesale sugar prices. The situation was labelled by the local press as the

“sugar crisis”. Since 2005, no TRQs for raw sugar have been applied. However, as part of its

WTO accession commitment, Ukraine reserved the right to do so in the future. In October

2008, a draft law introducing a TRQ for raw sugar processed from sugar cane was submitted

Figure 8.7. Ukrainian applied import tariffs on key agricultural productsAd valorem equivalents

Source: Kobouta, 2008 based on Ukraine’s State Customs Service data.statLink 2 http://dx.doi.org/10.1787/531663101470

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008

% Wheat Sunflower Seeds Sugar Pigmeat Poultry

Table 8.4. Ukraine’s import tariff rates on key agricultural products before and after WTO accession

1. Specific rates are converted into ad valorem equivalents using the customs value of goods in 2006.

Source: Kobouta, 2008 based on Ukraine’s State Customs Service data.statLink 2 http://dx.doi.org/10.1787/532374736371

Product and code

Applied import tariff in Ukraine before accession to WTO as of July 1, 2007

Bound tariff rate after Ukraine’s accession to the WTO as of May 16, 2008official statutory rate ad valorem equivalent1

Wheat (1001909930) EUR 40 for 1 tonne 30% 10%

Barley (100300) EUR 20 for 1 tonne 15% 5%

Fresh apricots (0809100000) EUR 0.5 for 1 kg 66% 5%

White sugar (1701991000) 50%, but not less than EUR 300 per ton 79% 50%

Sunflower seeds (1206009900) 15% 15% 10%

Beef, frozen (0202100000) 10%, but not less than EUR 0.6 per 1 kg 29% 15%

Pork, fresh or frozen (0203000000) 10%, but not less than EUR 0.6 for 1 kg 42% 10-12%

Poultry (0207) 10%, but not less than EUR 0.4 for 1 kg 31% 5-15%

Yoghurts (0403109100) EUR 0.5 for 1 kg 20% 10%

Butter (0405101100) EUR 1.5 for 1 kg 28% 10%

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to the Verkhovna Rada. According to this draft law, the quota is to be set at 263 000 tonnes for

2009 and 267 000 tonnes for 2010, with in-quota tariff rate of 2%.

Imports (as well as exports) of certain goods into Ukraine are subjected to licensing,

with the lists of eligible goods determined by the Government annually. In 2006, import

licensing was required for live animals, meat and wheat. This list was extended in 2007 to

include several food by-products, sugar and sugar syrup, and food products containing

cocoa. In 2008, only the latter three groups were maintained in the list as the acute food

price situation led the government to limit the licensing requirements.

Ukraine applied no bans or quantitative restrictions on the importation of agricultural

goods in 2006 and 2007, with the exception of goods with GMO content.

Export measures

Export regulations in 2006/08 were largely driven by the objective of constraining domestic

food price inflation. Export quotas for wheat, barley, maize and rye were imposed throughout

most of the 2006/07 and 2007/08 marketing seasons. As a result, grain exports plunged from

13.2 million in 2005/06 to 9.6 million in 2006/07 and 3.7 million tonnes in 2007/08. A

chronology of the wheat export quota is shown in Figure 8.8. The quota was in place for

almost all the period between late 2006 and mid-2008. Between March and July 2008 it

virtually turned into an export ban, as only 12 000 tonnes of exports were allowed.

There was also an attempt to apply export restrictions to other products. In May 2008,

the Government approved export quotas for sunflower seeds (1 000 tonnes) and sunflower

oil (300 000 tonnes), which were supposed to be in effect until July 2008. This decision was,

however, abrogated by the President two months later as being in contradiction of

Ukraine’s WTO commitments.

Figure 8.8. Ukrainian wheat export quota and wholesale wheat prices in 2006-08

Source: Kobouta, 2008; APK Inform Ukraine for wholesale price data.statLink 2 http://dx.doi.org/10.1787/531708043476

400

600

800

1 000

1 200

1 400

1 600

UAH/tonne

Milling wheat, 3rd class Milling wheat, 4th class Feed wheat

28 September 2006: licensingof export and import of wheatand wheat-rye mix (meslin)introduced

New export quota from 1 January 2007 to 30 June2007 introduced (3 000 t)

16 May 2007 export quota for wheat cancelled

New export quota from 1 July 2007 to 31 December 2007 introduced (3 000 t)

New export quota from 1 January 2008 to 31 March 2008 introduced (200 000 t)

New export quotas introduced until 1 July 2008 (1 200 000 t)

1 July 2008 export quota for wheat cancelled

11 October 2006: export quota introduceduntil 31 December 2006 (400 000 t)

Jan. 0

6

Feb. 0

6

Mar. 06

Apr. 06

May 06

June

06

July

06

Aug. 0

6

Sept. 0

6

Oct. 06

Nov. 0

6

Dec. 06

Jan. 0

7

Feb. 0

7

Mar. 07

Apr. 07

May 07

June

07

July

07

Aug. 0

7

Sept. 0

7

Oct. 07

Nov. 0

7

Dec. 07

Jan. 0

8

Feb. 0

8

Mar. 08

Apr. 08

May 08

June

08

July

08

Aug. 0

8

Sept. 0

8

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At the time of WTO accession, the Ukrainian export regime included export duties on

oilseeds, live animals, hides and skins. After the accession Ukraine will maintain duties,

but has undertaken to cut them over a six-year period. Thus, export duties on flax seeds,

sunflower and false flax were reduced from 17% to 16% of their customs value in 2007 and

to 14% in 2008, and will be further cut by 1% annually to reach 10%. The first reduction in

export duties for live cattle, hides and skins is foreseen on 1 January 2009.

Trade agreements

In 2006, the United States and the European Union (EU) accorded Ukraine status of acountry with a market economy, while in 2007, Brazil recognised Ukraine as a country

with a market economy in the light of anti-dumping legislation.

Ukraine is actively involved in negotiations with the European Union on establishing a

free trade area and a new Association Agreement to replace the previous Partnership and

Cooperation Agreement. The negotiations to create a free trade area were officially

launched on 18 February 2008. The parties emphasised that the format and composition of

the future free trade area would be oriented to profound economic integration. In April, July

and October 2008, three rounds of negotiations were held where the sides agreed on the

scope and basic principles of the future free trade. A good progress on specific areas of the

agreement was reached, including trade in goods and the parameters related to tariff

offers. As for the new Association Agreement between Ukraine and the European Union,

the tenth round of negotiations was held in November 2008.

Ukraine also participated in negotiations between the members of the agreement on

Common Economic Space (CES) between Belarus, Kazakhstan, Russia and Ukraine. One

stated objective of this Agreement is the formation of a free trade zone between members,

without exceptions or restrictions, such as anti-dumping measures, countervailing duties

and special safeguards (OECD, 2007). While the CES agreement does not contain provision

for the creation of a Customs Union, three members of the CES, Belarus, Kazakhstan and

Russia, are effectively in the process of forming a Customs Union (foreseen under other

regional agreement in which these three countries participate). In this respect, non-

participation of Ukraine in such Customs Union was discussed. After Ukraine's accession

to WTO, all trade integration agreements between Ukraine and CIS members, as well as

other countries shall be implemented in view of WTO requirements.

Bibliography

Agra Europe East, various editions.

EC (2008), Second Joint Progress Report, Negotiations on the EU-Ukraine Association Agreement, EuropeanCommission, Brussels, www.ec.europa.eu/external_relations/ukraine/docs/index_en.htm#progress.

EIU (2008), Country Report: Ukraine, Economic Intelligence Unit (EIU), London UK, June 2008.

Kobouta, I. (2008a), “Ukraine: Agricultural Policy Developments in 2006-08”, Report submitted to OECD.

MEU (2008), “Ukraine’s WTO Commitments Based on the Report on Ukraine’s Accession to the WTO(doc. WT/ACC/UKR/152)”, Ministry of Economy of Ukraine (MEU).

OECD (2007), Agricultural Policies in Non-OECD Countries: Monitoring and Evaluation, OECD, Paris.

World Bank (2008), Competitive Agriculture or State Control: Ukraine’s Response to the Global Food Crisis,World Bank, Washington, DC, May 2008.

World Bank/OECD (2004), Achieving Ukraine’s Agricultural Potential: Stimulating Agricultural Growth andImproving Rural Life, World Bank, Washington, DC and OECD, Paris.

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ANNEX A

Measuring Agricultural Support

1. Definitions of OECD indicators of agricultural support

Nominal indicators used in this report*

Producer Support Estimate (PSE): the annual monetary value of gross transfers from

consumers and taxpayers to agricultural producers, measured at the farm gate level, arising

from policy measures that support agriculture, regardless of their nature, objectives or

impacts on farm production or income. It includes market price support, budgetary

payments and budget revenue foregone, i.e. gross transfers from consumers and taxpayers to

agricultural producers arising from policy measures based on: current output, input use, area

planted/animal numbers/receipts/incomes (current, non-current), and non-commodity

criteria.

Market Price Support (MPS): the annual monetary value of gross transfers from

consumers and taxpayers to agricultural producers arising from policy measures that

create a gap between domestic market prices and border prices of a specific agricultural

commodity, measured at the farm gate level. MPS is also available by commodity.

Producer Single Commodity Transfers (producer SCT): the annual monetary value of

gross transfers from consumers and taxpayers to agricultural producers, measured at the

farm gate level, arising from policies linked to the production of a single commodity such

that the producer must produce the designated commodity in order to receive the

payment. This includes broader policies where transfers are specified on a per-commodity

basis. Producer SCT is also available by commodity.

Consumer Single Commodity Transfers (consumer SCT): the annual monetary value of

gross transfers from (to) consumers of agricultural commodities, measured at the farm

gate level, arising from policies linked to the production of a single commodity. Consumer

SCT is also available by commodity.

Consumer Support Estimate (CSE): the annual monetary value of gross transfers from

(to) consumers of agricultural commodities, measured at the farm gate level, arising from

policy measures that support agriculture, regardless of their nature, objectives or impacts

on consumption of farm products. If negative, the CSE measures the burden (implicit tax)

* Only indicators actually used in this report are defined here. Additional indicators, mainly relating tocommodity specificity, are defined in the “PSE Manual” (OECD’s Producer Support Estimate and RelatedIndicators of Agricultural Support: Concepts, Calculation, Interpretation and Use, available on the websitewww.oecd.org/tad/support/psecse).

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on consumers through market price support (higher prices), that more than offsets

consumer subsidies that lower prices to consumers.

General Services Support Estimate (GSSE): the annual monetary value of gross transfers to

general services provided to agricultural producers collectively (such as research,

development, training, inspection, marketing and promotion), arising from policy measures

that support agriculture regardless of their nature, objectives and impacts on farm production,

income, or consumption. The GSSE does not include any payments to individual producers.

Total Support Estimate (TSE): the annual monetary value of all gross transfers from

taxpayers and consumers arising from policy measures that support agriculture, net of the

associated budgetary receipts, regardless of their objectives and impacts on farm

production and income, or consumption of farm products.

Ratio indicators and percentage indicators

Percentage PSE (%PSE): PSE transfers as a share of gross farm receipts (including

support in the denominator).

Percentage SCT (%SCT): is the commodity SCT expressed as a share of gross farm

receipts for the specific commodity (including support in the denominator).

Share of SCT in total PSE (%): share of Single Commodity Transfers in the total PSE. This

indicator is also calculated by commodity.

Producer Nominal Protection Coefficient (producer NPC): the ratio between the average price

received by producers (at farm gate), including payments per tonne of current output, and the

border price (measured at farm gate). The Producer NPC is also available by commodity.

Producer Nominal Assistance Coefficient (producer NAC): the ratio between the value of

gross farm receipts including support and gross farm receipts (at farm gate) valued at

border prices (measured at farm gate).

Percentage CSE (%CSE): CSE transfers as a share of consumption expenditure on

agricultural commodities (at farm gate prices), net of taxpayer transfers to consumers. The

%CSE measures the implicit tax (or subsidy, if CSE is positive) placed on consumers by

agricultural price policies.

Consumer Nominal Protection Coefficient (consumer NPC): the ratio between the average

price paid by consumers (at farm gate) and the border price (measured at farm gate). The

Consumer NPC is also available by commodity.

Consumer Nominal Assistance Coefficient (consumer NAC): the ratio between the value

of consumption expenditure on agricultural commodities (at farm gate) and that valued at

border prices.

Percentage TSE (%TSE): TSE transfers as a percentage of GDP.

Percentage GSSE (%GSSE): share of expenditures on general services in the Total

Support Estimate (TSE).

2. The PSE classification

Introduction

Each year since the mid-1980s the OECD has measured the monetary transfers (support)

associated with agricultural policies in OECD countries (and increasingly, in non-OECD

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countries), using a standard method. For this purpose the OECD has developed several

indicators of transfers, the most important and central one being the Producer Support

Estimate (PSE). The results, published annually by the OECD, are the only available source

of internationally comparable and transparent information on support levels in agriculture.

The support estimates have provided an important contribution to the international policy

dialogue on agriculture and trade.

Over the years, while the fundamental methodology to measure support has not

changed, policy measures have evolved. This has been partially reflected in the

component parts of the overall PSE, which are categorised to improve the evaluation of

policy reform and for use in policy analysis. With the further evolution of policies,

following a two-year period of discussion among experts, OECD countries decided to

adopt significant changes in the classification of the generic policy categories in the PSE,

to change the measure of support to commodities, and to improve the presentation of the

relevant indicators. These changes reflect the evolution of agricultural policies in OECD

countries and were incorporated for the first time into the 2007 report on Agricultural

Policies in OECD Countries: Monitoring and Evaluation. This annex chapter explains the new

PSE classification, and how the data and indicators can be used to monitor policy

developments.

Measuring agricultural support

The Producer Support Estimate (PSE) estimates the annual monetary transfers to

farmers from three broad categories of policy measures that:

● Maintain domestic prices for farm goods at levels higher (and occasionally lower) than

those at the country’s border (market price support [MPS] estimation).

● Provide payments to farmers based on, for example, the quantity of a commodity

produced, the amount of inputs used, the number of animals kept, the area farmed, an

historical (fixed) reference period, or farmers’ revenue or income (budgetary payments).

● Provide implicit budgetary support through tax or fee reductions that lower farm input

costs, for example for investment credit, energy, and water (budgetary revenue foregone

estimation).

A crucial point to emphasise is that support not only comprises budget payments that

appear in government accounts (which is often the popular understanding of support), but

also estimations of budgetary revenues foregone, and estimation of the gap between

domestic and world market prices for farm goods – market price support.

The PSE indicators are expressed in both absolute monetary terms (in national

currencies, in US dollars and in euros) and in relative terms – in the case of the %PSE as a

percentage of the value of gross farm receipts (including support payments) in each

country for which the estimates are made. The %PSE shows the degree to which farmers

are supported in a way that is not influenced by the sectoral structure and inflation rate of

the country concerned, making this estimate the most widely acceptable and useful

indicator for comparisons of support across countries and time.

Additional indicators are derived from the PSE, such as the Producer Nominal Assistance

Coefficient (producer NAC) and the Producer Nominal Protection Coefficient (producer NPC).

The producer NAC is expressed as a ratio between the value of gross farm receipts (including

all forms of measured support) and the gross farm receipts valued at border prices (without

support). The producer NPC is defined as a ratio between the average price received by the

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producers (including payments based on current output) and the border price. The complete

set of OECD indicators of support is described in Annex A.1.

The main purpose of the calculations is to show the estimates and composition of support

each year, and to compare the trends across countries and through time, in order to monitor

and evaluate the extent to which OECD countries are making progress in policy reform to

which all OECD governments are committed. The PSE data (various indicators of support) are

also used as inputs in models used by the OECD (PEM, GTAP, SAPIM) to analyse the effects of

different policy instruments on production, trade, farm incomes and the environment.

Changes in the PSE methodology implemented in 2007

In its work on monitoring and evaluating agricultural policy developments, the OECD

has always not only estimated the overall level of support, but also shown how that

support was composed of different categories of agricultural policy measures. The

classification of support into the different categories under the PSE is based on how

policies are actually implemented – and not on the objectives or impacts of those policies.

Changes in the composition of support have over time become an increasingly important

element in assessing progress towards reforming agricultural policies. Yet, as the nature of

agricultural policies continues to evolve, the policy categories used for classifying support

may have to adjust as well. This is why the nature of the policy categories shown under the

PSE has now been revised, as described in the following. It should be noted that the number

and definition of policy categories under the PSE, and hence the breakdown of support

according to its composition, is the only change to the PSE methodology that has been

made – the overall PSE level is not affected by that change.

Previous classification of PSE and related indicators

The PSE classification that was used before 2007 (including the 2006 report on

Agricultural Policies in OECD Countries: At a Glance and the previous report on Agricultural

Policies in Non-OECD Countries: Monitoring and Evaluation, published in 2007 but prepared in

2006) is shown in Box A.1.

New classification of PSE and related indicators

In recent years in the process of policy reform, policies in many OECD countries have

been moving – to different degrees and at different speeds – towards providing support

that is less dependent on producing specific commodities. Policies are also increasingly

providing support based on farm area or on historical (fixed) criteria, which may be land,

animal numbers, or income, for example. In some cases, production is required (but the

actual commodities produced – currently or in the past – are not specified), in other cases

no agricultural commodity production is required or support is provided for the production

of non-commodity outputs. In many cases, there are other criteria that farmers must also

meet in order to be entitled to support, such as implementing constraints on the use of

inputs, or leaving land idle from commodity production but kept in “good agricultural or

environmental condition”.

The thrust of many of the changes in policies has been to move in the direction of

decoupling support from specific commodity production, and to base support on other

criteria. While there is increasingly more flexibility in what farmers can produce in order

to be entitled to support, there is often less flexibility in how farmers manage their

operations, with greater regulatory constraints or conditions. The consequence is that

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policies have become more varied and complex, and more difficult to group into the

previous PSE classification in ways that would permit a more accurate monitoring and

evaluation of policy reform and its use in quantitative policy analysis.

In reflecting these policy developments, a new PSE classification has been devised and

agreed, as outlined in Boxes A.2 and A.3. The key underlying criteria for the new

classification is that the policy measures continue to be classified according to the way

they are implemented. The proposed categories differ depending on:

● The transfer basis for support: output (Category A), input (Category B), area/animal

numbers/revenues/incomes (Categories C, D and E), non-commodity criteria (Category F).

● Whether the support is based on current (Categories A, B, C, F) or historical (fixed) basis

(Categories D and E, as well as F, depending on implementation conditions).

● Whether production is required (Categories C and D) or not (Category E).

Box A.1. Classification of PSE and related support indicators applied until 2006

Producer Support Estimate (PSE) (A-H)

A. Market price support estimation of which MPS commodities

B. Payments based on output

C. Payments based on area planted/animal numbers

D. Payments based on historical entitlements

E. Payments based on input use

F. Payments based on input constraints

G. Payments based on overall farm income

H. Miscellaneous payments

Percentage PSE (PSE as a % of gross farm receipts)

Producer Nominal Protection Coefficient (NPC)

Producer Nominal Assistance Coefficient (NAC)

General Services Support Estimate (GSSE)

Consumer Support Estimate (CSE)

Transfers to producers from consumers

Other transfers from consumers

Transfers to consumers from taxpayers

Excess feed costs

Percentage CSE (CSE as a % of farm gate value of consumption)

Consumer NPC

Consumer NAC

Total Support Estimate (TSE)

Transfers from consumers

Transfers from taxpayers

Budget receipts

Percentage TSE (as a share of GDP)

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In addition to categories, the new PSE classification includes labels that may be

applied to individual policies to provide further specification on the way each measure is

implemented: with or without production limits or input constraints, whether payments

are at fixed or variable rates (Box A.3). The applied labels are provided in the PSE Database.

Labels may be used alternatively as additional sub-categories of the classification as

needed, either in the standard tables or for special purposes (e.g. production of “satellite”

tables, use in further quantitative or empirical analysis).

The definitions of the categories and labels in the new PSE classification are shown in

Box A.3.

Box A.2. Classification of PSE applied from 2007

A. Support based on commodity output

A.1. Market price support (MPS)

A.2. Payments based on output

B. Payments based on input use

B.1. Variable input use with input constraints

B.2. Fixed capital formation with input constraints

B.3. On-farm services with input constraints

C. Payments based on current A/An/R/I, production required

C.1. Based on current revenue/income

C.2. Based on current area/animal numbers with input constraints

D. Payments based on non-current A/An/R/I, production required

E. Payments based on non-current A/An/R/I, production not required

E.1. Variable rates

E.2. Fixed rates

F. Payments based on non-commodity criteria

F.1. Long-term resource retirement

F.2. Specific non-commodity output

F.3 Other non-commodity criteria

G. Miscellaneous payments

Labels to be attached to programmes in the above categories of policy measures:

❖ With/without L (with or without current commodity production limits and/or payment limits).

❖ With V/F rates (with variable or fixed payment rates).

❖ With/without input constraints (C) (With Mandatory/With Voluntary/Without input constraints).

❖ With/without E (with or without any commodity exceptions).

❖ Based on A/An/R/I (based on area, animal numbers, receipts or income).

❖ Based on SC/GC/AC (based on a single commodity, group of commodities or all commodities).

Note: A (area), An (animal numbers), R (receipts) or I (income).

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Box A.3. Definitions of categories in the new PSE classification

Definitions of categories:

Market price support (MPS): transfers from consumers and taxpayers to agriculturalproducers from policy measures that create a gap between domestic market prices andborder prices of a specific agricultural commodity, measured at the farm gate level.

Payments based on output: transfers from taxpayers to agricultural producers from policymeasures based on current output of a specific agricultural commodity.

Payments based on input use: transfers from taxpayers to agricultural producers arisingfrom policy measures based on on-farm use of inputs:

● Variable input use that reduces the on-farm cost of a specific variable input or a mix ofvariable inputs.

● Fixed capital formation that reduce the on-farm investment cost of farm buildings,equipment, plantations, irrigation, drainage, and soil improvements.

● On-farm services that reduce the cost of technical, accounting, commercial, sanitary andphyto-sanitary assistance and training provided to individual farmers.

Payments based on current A/An/R/I, production required: transfers from taxpayers toagricultural producers arising from policy measures based on current area, animalnumbers, receipts, or income, and requiring production.

Payments based on non-current A/An/R/I, production required: transfers from taxpayers toagricultural producers arising from policy measures based on non-current (i.e. historical orfixed) area, animal numbers, receipts, or income, with current production of anycommodity required.

Payments based on non-current A/An/R/I, production not required: transfers fromtaxpayers to agricultural producers arising from policy measures based on non-current(i.e. historical or fixed) area, animal numbers, receipts, or income, with current productionof any commodity not required but optional.

Payments based on non-commodity criteria: transfers from taxpayers to agriculturalproducers arising from policy measures based on:

● Long-term resource retirement: transfers for the long-term retirement of factors ofproduction from commodity production. The payments in this subcategory aredistinguished from those requiring short-term resource retirement, which are based oncommodity production criteria.

● A specific non-commodity output: transfers for the use of farm resources to producespecific non-commodity outputs of goods and services, which are not required byregulations.

● Other non-commodity criteria, transfers provided equally to all farmers, such as a flat rateor lump sum payment.

Miscellaneous payments: transfers from taxpayers to farmers for which there is a lack ofinformation to allocate them among the appropriate categories.

Definitions of labels

With or without current commodity production limits and/or limit to payments: defineswhether or not there is a specific limitation on current commodity production (output)associated with a policy providing transfers to agriculture and whether or not there arelimits to payments in the form of limits to area or animal numbers eligible for thosepayments. Applied in Categories A-F.

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Changes in the commodity indicators related to the PSE and CSE

Up until the 2005 report on Agricultural Policies in OECD Countries: Monitoring and

Evaluation the data on PSEs and related indicators were also shown by commodity, in

monetary values and in percentages (or ratios). These commodity data were calculated

from adding the commodity specific levels of support (market price support and

payments based on output of individual commodities) to the levels of support to

commodities for all other policies estimated using various allocation keys (for example,

on the basis of a given commodity’s share in the value of total production of all

commodities, or of crops or livestock only depending on the commodity coverage of a

particular policy measure).

To reflect the way in which policies are evolving, with the gradual shift away from

direct commodity-linked support, the total PSE will no longer be broken down into

commodities. Instead the total PSE is broken down into four categories reflecting the

flexibility given to farmers’ production decisions within the various policy measures. In the

current report only one of these categories is reported, namely the SCT, which is defined as

follows:

● Single Commodity Transfers (SCT): the annual monetary value of gross transfers from

policies linked to the production of a single commodity such that the producer must

produce the designated commodity in order to receive the transfer. This includes

broader policies where payments are specified on a per-commodity basis.

Box A.3. Definitions of categories in the new PSE classification (cont.)

With variable or fixed payment rates: Any payments is defined as subject to a variable ratewhere the formula determining the level of payment is triggered by a change in price,yield, net revenue or income or a change in production cost. Applied in Categories A-E.

With or without input constraints: defines whether or not there are specific requirementsconcerning farming practices related to the programme in terms of the reduction,replacement, or withdrawal in the use of inputs or a restriction of farming practicesallowed. Applied in Categories A-F. The payments with input constrains are further brokendown to:

● Payments conditional on compliance with basic requirements that are mandatory (with

mandatory);

● Payments requiring specific practices going beyond basic requirements and voluntary(with voluntary).

With or without commodity exceptions: defines whether or not there are prohibitionsupon the production of certain commodities as a condition of eligibility for paymentsbased on non-current A/An/R/I of commodity(ies). Applied in Category E.

Based on area, animal numbers, receipts or income: defines the specific attribute(i.e. area, animal numbers, receipts or income) on which the payment is based. Applied inCategories C-E.

Based on a single commodity, a group of commodities or all commodities: defines whetherthe payment is granted for production of a single commodity, a group of commodities orall commodities. Applied in Categories A-D.

Note: A (area), An (animal numbers), R (receipts) or I (income).

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Indicators used in policy analysis

Indicators related to total support

The new PSE classification does not change the total PSE. The only change is its

breakdown into new categories based on well-established implementation criteria

(Box A.3). The relative indicators linked to the total PSE (%PSE, producer NPC and producer

NAC) and CSE (%CSE, consumer NPC and consumer NAC) continue to be calculated as

previously. The GSSE is also still expressed as a share of total TSE and the %TSE in relation

to GDP. Annex A.1 provides definitions of these indicators.

Commodity specific indicators

The changes in the application of the methodology do not allow a breakdown of the

total PSE by commodity. Therefore, the %PSE by commodity and the producer NAC by

commodity are no longer calculated, but the producer and consumer NPCs remain.

The Producer Single Commodity Transfer (Producer SCT) is by definition available for

specific commodities, as well as the derived relative indicator the %SCT. As mentioned

above, the SCT is the sum of transfers to producers through policies granted to a single

commodity, the most important element of which is in most cases the market price support.

The %SCT is the commodity SCT expressed as a share of gross farm receipts for the specific

commodity. Compared to the previously used commodity %PSE (which included all PSE

support), the %SCT includes only support provided through commodity specific policies.

For the CSE, in the absence of transfers from taxpayers to consumers (i.e. the situation

in most cases), the CSE is the mirror image of the MPS and hence by definition is

commodity specific. By applying the same principle of not using allocation keys to

distribute transfers from taxpayers to consumers to commodities the commodity %CSE

and the consumer NAC by commodity is no longer calculated. However, in most cases the

consumer NPC is equal to the consumer NAC by commodity and captures all the transfers

to (from) consumers. Hence, the consumer NPC is the main tool used to analyse support to

consumers by commodity.

Use of labels in the PSE Database

The use of labels gives considerable flexibility to break down the total PSE into

categories reflecting specific characteristics of policies in an ad hoc manner (i.e. whether

the policy includes a constraint on input use or not, or whether it is applied with or without

production limits – see the definition of labels in Box A.3). When desired, the labels in the

database may be used alternatively as additional sub-categories in the main classification

framework. Currently labels are used in this way as subcategories in Category E.

The labels applied in the database can be used to produce specific aggregations of

payments for the tables in the Monitoring and Evaluation Report to give emphasis to a specific

implementation criteria used in the policies applied. The label information can be used

also in quantitative analyse based on the PSE Database, e.g. PEM work or when linking

policies with environmental issues (SAPIM).

The use of the new classification and related indicators in policy analysis

The new classification of categories of policy measures, based, as ever, on how the

policies are implemented, has the potential to show the degree of flexibility that farmers

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have in their production choices and thus how different policies influence farmers’

decisions to produce commodities and other goods and services using farm resources.

Some policy measures deliver support directly related to the amount of a specific

commodity produced (market price support and payments based on commodity

production) or variable inputs used. As shown by the results of the Policy Evaluation

Model (PEM) on decoupling, these policy measures are the ones that potentially (ex ante)

have the strongest influence on commodity production incentives although this effect is

weakened in those countries that place constraints on output produced or inputs used.

Policy measures that are designed to deliver support based on current parameters, such as

area or animal numbers and require commodity production, have a potentially somewhat

weaker influence on production incentives. Policy measures providing support based on

historical parameters, such as the overall farm area or income situation of the farmer, have

potentially much less influence on production incentives, while those that provide support

based on non-commodity criteria (such as the provision of trees, stone walls and hedges),

have potentially the least influence on production. Clearly, the actual impacts (ex post) will

depend on many factors that determine the aggregate degree of responsiveness of farmers

to policy changes – including any constraints on production. Neither the total PSE nor its

composition in terms of different categories of policies can, therefore, be interpreted as

indicating the actual impact of policy on production and markets. Policy analysis based on

support composition can only provide information on the potential of some of the

individual policy categories (A, part of B) to influence producer decisions, while for other

categories (C) this potential is less clear, as they group more heterogeneous policies. It is

only through model-based analysis (such as provided in the OECD'S PEM) or empirical

analysis and the use of labels that firmer conclusions can be drawn regarding production

and market impacts of given policy measures.

Against this background, the new classification of policy measures and the use of

labels will be able to better reflect the evolution of the policy mix. It is thus possible to

assess policy reform not only in terms of the trends in the overall level of support, but also

in terms of whether there were shifts towards policies that have less potential to distort

commodity production and trade. Identifying policy measures that provide support based

on a mixture of current and past production variables and those that deliver support not

based on farm commodity production provides a rich source of data to help to evaluate

progress in policy reform. Moreover, the data base can be marshalled to illustrate

developments on matters where specific policy interests within a country or across

countries are important.

Policies in the PSE are classified according to the basis on which support is

delivered (implementation criteria) and not on policy objectives or impacts. The new PSE

data base will provide a wealth of material to engage in model-based analysis of the effects

of different policy instruments on variables such as production, trade and the

environment. Increasingly, countries are interested in knowing the extent to which policy

measures are targeted to achieve the range of policy objectives (effectiveness), assessing

the costs and benefits of those efforts (efficiency), and understanding the implications for

the distribution of income (equity). In addressing these issues, it is important to recognise

that the PSE needs to be complemented with other data, as well as with information on the

overall policy mix. Moreover, the use and interpretation of PSE and associated indicators in

comparisons across countries and time needs to be undertaken with care.

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3. Measuring agricultural support in emerging economies: technical updates and improvements

In addition to the changes in PSE methodology discussed in Annex A.2 and incorporated

for the first time into this edition of the report on Agricultural Policies in Emerging Economies:

Monitoring and Evaluation, a significant effort has been made to update and improve the

support estimates for the six emerging economies for which calculations are made. Results

of this work have been incorporated into the PSE Database for the countries concerned and

are reflected in the evaluations contained in this report. These improvements are briefly

summarised below. The Database of support indicators for emerging economies is available

on line: www.oecd.org/tad/support/psecse.

Brazil

Market price support

Changes were introduced into the calculation of market price support for cotton using

improved data on conversion rates, marketing margins, and producer and wholesale

prices. The revisions resulted in somewhat higher than previous market price support

estimates for cotton.

Budgetary payments

A special focus was given to monitoring developments in farm debt. An overview of

the most recent government decisions in 2008 concerning another large-scale

restructuring of farm debt is contained in the Brazil country chapter. These concessions

have not yet been implemented as the procedure obliges debtors to enrol in the

announced restructuring schemes and undergo assessment of their liabilities.

According to the Brazilian Ministry of Agriculture and Livestock, the enrolment has been

marginal to date; the deadline for applications has been extended to mid-

December 2008 and most likely will be postponed further. Therefore, the actual scale of

the debt involved in new restructuring and the specific structure of concessions (which

are highly differentiated according to types of loans and the condition of debtors) are

currently unknown.

However, as done previously, the Brazil support estimates were updated to incorporate

the currently active debt concessions implemented in the mid-1990s and first half of the

2000s. This concerns the Programme of Financial Assets Rehabilitation (PESA), Rural Debt

Securitisation, and also debt concessions related to credit programmes for small farmers

(PRONAF, PROCERA and PROGER). The support transfers originating from these active debt

rescheduling schemes are estimated at BRL 2.1 billion (USD 971 million) per year on

average for 2005-07. The transfer corresponds to an estimated interest gain from reduced

interest and “good payer” rebates on restructured loans; it is classified in PSE Category B2

“Payments Based on Fixed Capital Formation”.

Chile

Like the other five countries, PSEs and related indicators of support have been

estimated up to 2007 for Chile. However, as the PSE Database for Chile was only constructed

in 2007/08, there was no need for major revisions to the methodology used for calculating

transfers or the classification of support programmes for this edition of the report.

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China


Market price support calculations, including margins and quality adjustments, have

been reviewed and cross-checked with a similar exercise undertaken recently within the

World Bank study on distortions to agricultural incentives in China. The review found that

no major changes in MPS calculations were needed with the exception of poultry. As China

has become a consistent net importer of poultry since 2002, the previous price gap between

domestic and international prices which was set at zero on the basis of China being a net

exporter of poultry with no market price support policies identified, has been replaced by

a price gap derived from the 2% tariff on poultry imports.

Budgetary payments

To address concerns regarding the level of programme aggregation within budgetary

transfers to agriculture, a two-step approach has been applied. First, a detailed overview of

government expenditures to support rural areas, including a description of the various

programmes, was prepared by a local expert to better differentiate between budgetary

expenditures targeting agricultural producers, the agricultural sector as a whole and

programmes supporting rural areas at large. Having distinguished programmes as targeting

agricultural producers (PSE) and the agricultural sector as a whole (GSSE), more detailed

information was sought to allow a greater disaggregation of budgetary payments, in

particular for the period 2004-07. While the level of support for producers (%PSE) and for the

sector as a whole (%GSSE) has changed only marginally due to this exercise, much better

information has been gained on the structure of support, improving the classification of

policies. In addition, a better understanding of the co-financing principles between central

and local governments has been gained. To the extent possible, data on budgetary support

to agriculture includes transfers from both central and sub-national governments.

Russia


Estimates for beef, pigmeat and poultry have been revised for the period between 2000

and 2007 based on new definition of border prices. For all three types of meat, border prices

were estimated as weighted averages of Russian unit values of imported i) frozen meat and

ii) fresh and chilled meat, with weights being the shares of the two types of meat in total

domestic meat processing. Border price used previously for beef and veal and poultry were

for frozen (carcass) meat; while for pigmeat prices for fresh and chilled (carcass) meat were

applied. The weighting procedure allows for better comparability of border and domestic

price (in terms of composition of fresh and chilled meat). The change introduced resulted in

lower MPS estimates for beef and poultry, since the weighting takes into account higher-

priced import (fresh and chilled meat) and therefore yields higher average border price. For

pigmeat, the change resulted in higher MPS, as the revised price takes into account lower-

priced import (frozen meat) and therefore results in lower average border price.

Budgetary payments

Attention was given to reviewing sub-national expenditure. The Russian Federation

consists of 83 sub-national territorial units that form and execute regional budgets. The

support estimates for all years incorporate budgetary transfers from both the federal and

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regional levels. For the current report, an effort was made to account more accurately for

the regional component and, possibly, improve the classification of regional financing

within the various PSE and GSSE categories. Concerning the latter task, the Russian

budgetary reporting system contains enough detailed information on co-financed (at

federal and regional levels) programmes, with additional information on the composition

of regional expenditure derived from reports detailing the implementation of nation-

wide programmes relating to special issues such as the Soil Fertility Programme, Social

Development of Rural Areas and others. However, a portion of regional expenditure

enters the official budgetary reporting system in a highly aggregated form (e.g. in

groupings such as “support for crop production” or “support for livestock production”).

Although it is generally possible to distinguish groupings according to whether they

benefit producers individually (PSE) or collectively (GSSE), it is not possible to classify the

expenditure to specific categories within these two components. Consequently, a share

of regional expenditure (12% in 2006 and 27% in 2007) continues to be classified in PSE

Category G “Miscellaneous”. Further improvement does not seem feasible, given the

existing state budget reporting system. It may prove useful to undertake case studies

looking at agricultural budgets for a number of Russian regions with different policy

profiles. This analysis, however, goes beyond the framework of OECD’s regular policy

monitoring.

South Africa


The reference prices for maize, wheat and sugar have been checked with local experts

and additional information on policies creating the price gap was sought. Based on this

information, the reference price series were adjusted for all three commodities.

Consequently, the new price gap estimates reflect better the applied border measures, the

only policy instruments creating a price gap. The margins (processing and transportation

costs) for sheepmeat and sugar have also been verified and updated based on information

received from local experts. Overall, the improvement in the price gap measurement and

hence the MPS are now more consistent with the policy measures applied.

Budgetary payments

In recent years the most important budgetary payments relate to the implementation of

the land reform and related programmes assisting farmers emerging from the reform process.

New policy information and budgetary data on expenditures linked with the land reform have

been provided by the South African Department of Land Affairs. This new information helped

to split budgetary payments financing the land reform into three broad groups:

● Budgetary transfers to individual farms to be included in the PSE (i.e. land grants,

investment grants).

● Budgetary transfers financing general services to the sector included in the GSSE

(i.e. education and training, dissemination of information, infrastructure improvements,

land reclamation).

● Budgetary transfers not included in the estimates of support to agriculture (neither the

PSE nor the GSSE – i.e. administration expenditures, budgetary expenditure spent on

restitutions).

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Ukraine


A change was introduced in the reference price calculation for wheat for 2006-07. As

Ukraine imposed export quotas on wheat for most of the period 2006 to mid-2008,

Ukrainian export wheat prices, used previously for the reference price calculation, no

longer represented an appropriate reference. A weighted average of the International

Grains Council quotations for feed and milling wheat was used (f.o.b. Black Sea), with

weights being the shares of feed and milling wheat in total Ukrainian domestic production.

Budgetary payments

An estimated implicit transfer to producers arising from loans provided against

pledged grain, not previously included in the estimates, was incorporated into the

Ukrainian PSE and classified in Category A2 “Payments based on output”. This had a

marginal impact on the PSE and related indicators as the programme is very small. The

transfer values are estimated by the Ukrainian Ministry of Agrarian Policy. The mechanism

of this programme is similar to the Commodity Loans programme in the United States.

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Statistical Annex

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Table B.1. Share of agriculture in total employment
Per cent

n.a.: not available.1. Includes agriculture, forestry and fishing.2. Includes forestry and hunting.3. The employment figures do not include subsistence farming.

Source: OECD based on national data, 2008.statLink 2 http://dx.doi.org/10.1787/532384703610

Table B.2. Share of agriculture in GDPPer cent

1. Includes agriculture, forestry and fishing.

Source: OECD based on national data, 2008; World Bank, World Development Indicators, 2008.statLink 2 http://dx.doi.org/10.1787/532422557611

Table B.3. Agricultural input price indexPer cent change from previous year



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 25.5 25.9 26.4 26.1 25.4 26.1 23.3 22.8 21.9 23.0 20.7 20.6 20.6 20.7 21.0 20.5 19.3 18.3

Chile 19.0 18.8 18.3 17.0 16.4 15.8 15.2 14.2 14.1 14.2 14.1 13.6 13.5 13.7 13.6 13.3 12.6 12.0

China1 60.1 59.7 58.5 56.4 54.3 52.2 50.5 49.9 49.8 50.1 50.0 50.0 50.0 49.1 46.9 44.8 42.6 40.8

India1 62.2 62.1 64.5 65.3 64.3 64.6 63.8 63.8 64.1 63.3 61.3 58.2 58.0 58.4 58.0 56.6 55.7 52.0

Russia2 12.9 13.1 14.0 14.3 15.0 14.7 14.0 13.3 13.7 13.3 14.2 13.3 12.7 12.0 11.4 11.3 10.8 10.2

South Africa3 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10.9 14.5 10.5 12.6 10.6 9.1 7.5 8.5 8.8

Ukraine1 19.5 19.1 20.1 20.4 20.6 22.2 21.4 21.8 21.5 22.8 23.5 24.9 25.2 20.4 19.7 19.4 17.6 16.7

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 8.1 7.8 7.7 7.6 9.9 5.8 5.5 5.4 5.5 5.5 5.6 6.0 6.6 7.4 6.9 5.7 5.2 5.5

Chile 8.0 7.5 7.5 7.2 7.2 6.8 4.2 4.0 4.1 4.1 4.2 4.3 4.4 3.6 3.7 3.8 3.9 3.8

China1 27.1 24.5 21.8 19.7 19.8 19.9 19.7 18.3 17.6 16.5 15.1 14.4 13.7 12.8 13.4 12.5 11.3 11.3

India1 29.3 29.6 29.0 28.9 28.5 26.5 27.4 26.1 26.0 25.0 23.4 23.2 20.9 21.0 19.2 18.8 18.3 17.8

Russia 16.5 14.2 7.3 8.1 6.3 7.6 7.3 7.2 6.5 7.4 6.4 6.6 6.3 6.2 5.6 5.4 5.0 4.6

South Africa 4.6 4.6 3.8 4.2 4.6 3.9 4.2 4.0 3.8 3.5 3.3 3.5 4.2 3.6 3.1 2.7 2.8 3.2

Ukraine 25.4 22.2 20.8 21.5 15.3 14.6 13.1 13.7 13.7 13.5 16.2 16.3 14.6 12.1 11.9 10.4 8.6 7.6

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 2 645 465 1 087 2 463 919 35 11 5 3 20 6 12 31 13 13 2 2 5

Chile n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China 6 3 4 14 22 27 8 –1 –6 –4 –1 –1 1 1 11 8 2 8

India n.a. 20 5 12 10 10 4 7 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Russia n.a. 90 1 520 970 320 232 64 19 9 61 49 18 12 19 25 16 11 12

South Africa 12 12 6 9 7 9 13 10 2 5 10 14 20 6 3 2 5 13

Ukraine n.a. 60 3 769 5 523 729 469 71 12 9 26 32 11 3 8 18 15 14 20An

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Table B.4. Agricultural output price index
Per cent change from previous year

n.a.: not available.1. Agricultural wholesale prices from 1995.


Table B.5. Retail food price indexPer cent change from previous year

n.a.: not available.1. December to December.


Table B.6. Gross Agricultural Output growth, totalPer cent change from previous year



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 2 933 454 1 324 2 843 1 150 –3 11 11 5 17 0 16 47 6 0 –6 5 26

Chile n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

China –3 –3 3 13 40 20 4 –5 –8 –12 –4 3 0 4 13 1 1 19

India1 12 20 5 12 10 9 8 3 12 1 3 4 3 4 2 2 7 n.a.

Russia n.a. 60 845 712 225 235 44 9 11 100 37 25 3 9 28 10 4 30

South Africa 7 8 19 1 11 14 6 7 4 0 6 14 28 7 –6 –7 16 27

Ukraine n.a. 90 1 750 3 860 570 330 64 5 10 29 56 5 –13 21 6 9 2 38

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 1 413 472 1 152 2 468 1 024 8 2 1 2 8 3 10 19 7 4 2 1 11

Chile n.a. n.a. 12 9 7 9 4 9 1 1 0 2 4 –1 0 5 1 15

China 0 3 8 14 35 25 8 0 –3 –4 –3 1 0 3 10 3 3 12

India n.a. 12 16 10 7 12 11 9 5 15 0 2 3 2 4 2 4 9

Russia1 n.a. 136 2 526 805 214 123 18 9 96 36 18 17 11 10 12 10 9 16

South Africa 14 16 14 11 7 9 7 9 7 5 5 6 9 6 1 3 5 7

Ukraine1 n.a. n.a. n.a. 12 080 370 150 17 14 22 26 28 8 –2 11 15 11 4 24

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil –4.5 6.1 6.0 0.5 6.9 5.5 –1.4 3.7 1.2 7.7 3.1 5.6 6.2 7.5 5.0 –0.3 n.a. n.a.

Chile n.a. 1.3 12.8 0.1 3.8 4.8 –2.0 0.1 2.6 –3.0 3.2 9.5 3.2 –4.2 4.1 5.5 –1.4 –0.1

China 7.6 3.7 6.4 7.8 8.6 10.9 9.4 6.7 6.0 4.7 3.6 4.2 4.9 3.9 7.5 5.7 5.4 3.9

India 0.5 0.8 4.7 2.6 3.6 2.8 4.3 1.5 3.1 4.8 0.0 3.1 –7.0 9.8 0.6 6.2 4.2 4.8

Russia –3.6 –5.0 –9.0 –4.0 –12.0 –8.0 –5.0 2.0 –13.2 4.1 7.7 7.5 1.5 1.3 3.0 2.3 3.6 3.3

South Africa –1.0 1.5 –15.5 14.3 6.2 –14.7 19.4 1.2 –6.5 6.4 10.0 –4.6 5.7 –0.4 1.8 2.0 0.9 –0.6

Ukraine –3.7 –13.2 –8.3 1.5 –16.5 –3.6 –9.5 –1.8 –9.6 –6.9 9.8 10.2 1.2 –11.0 19.7 0.1 2.5 –6.5An

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Table B.7. Gross Agricultural Output growth, crops
Per cent change from previous year

n.a.: not available.1. Without horticulture.


Table B.8. Gross Agricultural Output growth, livestockPer cent change from previous year



Table B.9. Total grain productionMillion tonnes

Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008.statLink 2 http://dx.doi.org/10.1787/532530788667

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil –8.2 1.1 6.4 –1.3 7.9 2.6 –5.7 6.4 1.5 7.2 1.9 7.3 5.8 9.7 3.8 –0.6 n.a. n.a.

Chile n.a. 0.4 15.9 –1.6 5.2 4.9 –3.8 –1.9 3.2 –4.7 3.6 10.5 5.0 –5.7 3.4 6.0 –3.1 –0.5

China 8.0 0.9 4.2 5.2 3.2 7.9 7.8 4.5 4.9 4.3 1.4 3.6 3.9 0.5 8.5 4.1 5.4 4.0

India –0.9 1.0 4.8 2.1 3.5 1.7 4.8 0.7 2.4 4.9 –1.7 2.4 –10.5 12.7 –1.0 6.9 4.2 5.3

Russia –7.5 0.4 –5.0 –3.0 –10.0 –5.0 0.3 7.3 –23.5 9.1 13.6 10.8 0.0 3.1 7.4 4.1 2.0 2.0

South Africa1 –11.1 1.5 –27.1 31.4 12.2 –20.0 31.4 –1.2 –7.8 8.6 7.2 –8.2 8.5 –4.0 2.7 10.1 –13.8 –7.8

Ukraine –6.6 –17.1 1.4 11.5 –23.5 3.5 –8.8 7.1 –18.1 –10.5 23.2 12.6 –2.0 –14.6 35.4 –3.0 1.7 –9.5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 1.8 14.1 5.5 3.1 5.4 9.5 4.3 0.4 0.8 8.4 4.5 3.6 6.7 4.8 6.5 0.0 n.a. n.a.

Chile n.a. 3.5 4.9 4.9 0.0 4.5 3.1 5.3 1.2 1.2 2.2 7.2 –1.0 –0.4 5.9 4.3 2.6 0.9

China 7.0 8.8 8.8 10.8 16.7 14.8 11.4 10.1 7.4 4.6 6.3 6.3 6.0 7.3 7.2 7.8 5.0 2.3

India 4.5 0.5 4.3 4.3 3.9 6.0 2.7 3.6 4.8 4.6 4.2 4.6 2.7 2.6 4.7 4.3 4.1 3.5

Russia –0.9 –7.0 –12.0 –5.0 –13.0 –10.0 –11.0 –5.3 –1.8 –0.7 0.8 3.5 3.2 –0.5 –2.4 0.3 5.4 4.8

South Africa 14.1 0.9 1.2 –1.6 –2.5 –5.0 0.1 5.2 –1.3 2.6 11.6 –0.1 2.5 4.5 0.6 1.9 10.4 3.0

Ukraine –1.2 –9.9 –15.7 –7.9 –8.7 –10.3 –10.2 –11.5 1.6 –2.9 –3.6 7.0 5.3 –6.5 2.0 4.7 3.6 –2.3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 32.5 36.7 44.1 43.1 45.8 49.6 45.0 44.9 40.7 47.4 45.9 57.1 50.9 67.5 64.0 55.4 59.1 68.8

Chile 3.0 2.9 2.9 2.6 2.6 2.8 2.6 2.9 3.1 2.2 2.6 3.1 3.4 3.7 4.0 3.9 3.5 3.0

China 404.4 395.7 401.7 405.2 393.9 416.1 451.3 443.5 456.2 453.0 405.2 396.5 398.0 374.3 411.6 427.8 451.0 456.3

India 193.9 193.1 201.5 208.6 211.9 210.0 218.8 223.2 226.9 236.2 234.9 243.0 206.6 236.6 229.8 240.0 242.9 252.1

Russia 116.7 89.1 106.9 99.1 81.3 63.4 69.3 88.6 47.9 54.7 65.5 85.2 86.6 67.2 78.1 78.2 78.6 81.8

South Africa 11.6 11.3 5.1 12.8 16.0 7.5 13.7 13.2 10.2 10.1 14.5 10.7 13.1 11.8 12.4 14.2 9.5 9.6

Ukraine 51.0 38.7 38.5 45.6 35.5 33.9 24.5 35.5 26.5 24.4 24.5 39.7 38.8 20.2 41.8 38.0 34.3 29.3

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Table B.10. Wheat production
Million tonnes


Table B.11. Coarse grain productionMillion tonnes


Table B.12. Total meat productionThousand tonnes, carcass weight


Table B.13. Beef and veal productionThousand tonnes, carcass weight


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 3.1 2.9 2.8 2.2 2.1 1.5 3.3 2.5 2.3 2.5 1.7 3.4 3.1 6.2 5.8 4.7 2.5 4.0

Chile 1.7 1.6 1.6 1.3 1.3 1.4 1.2 1.6 1.7 1.2 1.5 1.8 1.8 1.8 1.9 1.9 1.4 1.1

China 98.2 96.0 101.6 106.4 99.3 102.2 110.6 123.3 109.7 113.9 99.6 93.9 90.3 86.5 92.0 97.4 108.5 109.3

India 49.8 55.1 55.7 57.2 59.8 65.8 62.1 69.4 66.3 71.3 76.4 69.7 72.8 65.8 72.2 68.6 69.4 74.9

Russia 49.6 38.9 46.2 43.5 32.1 30.1 34.9 44.3 27.0 31.0 34.5 47.0 50.6 34.1 45.4 47.7 45.0 49.4

South Africa 1.7 2.1 1.3 2.0 1.8 2.0 2.7 2.4 1.9 1.7 2.4 2.5 2.4 1.5 1.7 1.9 2.1 1.8

Ukraine 30.4 21.2 19.5 21.8 13.9 16.3 13.5 18.4 14.9 13.6 10.2 21.3 20.6 3.6 17.5 18.7 13.9 13.9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 22.0 24.3 31.3 30.8 33.2 36.9 33.0 34.0 30.8 33.3 33.1 43.6 37.3 51.0 44.9 37.5 45.1 53.8

Chile 2.8 2.6 2.7 2.4 2.4 2.5 2.4 2.7 2.9 2.0 2.4 2.9 3.2 3.5 3.8 3.7 3.2 2.8

China 114.6 115.9 113.9 121.3 118.7 128.7 145.6 119.5 147.8 140.7 117.7 125.0 133.2 127.1 140.5 149.7 155.3 160.6

India 32.6 25.9 36.8 31.0 29.5 28.8 34.2 30.2 31.5 30.4 31.1 33.4 26.1 38.0 33.0 33.7 34.4 36.1

Russia 58.4 45.2 56.9 52.0 46.0 31.3 32.3 42.2 19.5 22.4 29.3 35.9 33.8 31.0 30.3 28.3 31.2 30.4

South Africa 9.9 9.2 3.7 10.8 14.1 5.5 11.0 10.8 8.3 8.3 12.1 8.2 10.6 10.3 10.7 12.3 7.4 7.8

Ukraine 16.5 14.7 16.0 20.8 19.0 16.0 9.8 15.9 10.7 10.3 13.5 17.5 17.4 16.0 23.4 18.5 19.5 14.9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 7 709 9 465 10 112 10 685 11 489 12 808 12 752 12 960 13 283 14 588 15 434 15 974 17 308 18 388 19 919 20 899 19 963 20 082

Chile 520 529 572 642 730 777 814 849 902 890 954 1 020 1 022 1 041 1 134 1 193 1 339 1 351

China 30 410 33 362 36 398 40 543 44 720 48 244 45 840 52 688 57 238 59 490 60 139 61 058 62 343 64 433 66 087 69 389 70 890 68 657

India 3 929 4 023 4 285 4 467 4 494 4 631 4 785 4 669 4 753 4 913 5 201 5 473 5 610 5 727 5 913 6 200 6 121 6 322

Russia 10 112 9 375 8 260 7 513 6 803 5 796 5 336 4 854 4 703 4 313 4 432 4 451 4 694 4 936 4 994 4 914 5 189 5 637

South Africa 1 679 1 587 1 578 1 512 1 453 1 558 1 626 1 639 1 662 1 840 1 711 1 777 1 891 1 991 2 083 2 033 2 198 2 111

Ukraine 4 358 4 029 3 401 2 815 2 677 2 294 2 113 1 875 1 706 1 695 1 663 1 517 1 648 1 725 1 600 1 597 1 723 1 912

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 4 132 4 357 4 563 4 654 4 970 5 529 6 045 4 973 5 066 6 413 6 579 6 824 7 139 7 230 7 774 8 592 7 800 7 900

Chile 242 229 199 224 239 257 259 262 256 226 226 217 199 191 208 215 238 242

China 1 144 1 397 1 654 2 139 2 535 3 296 3 557 4 409 4 799 5 054 5 131 5 086 5 219 5 425 5 604 5 681 5 767 6 134

India 1 325 1 228 1 279 1 356 1 361 1 365 1 370 1 378 1 401 1 421 1 442 1 452 1 351 1 335 1 337 1 334 1 289 1 282

Russia 4 329 3 989 3 632 3 359 3 240 2 734 2 630 2 366 2 246 1 868 1 895 1 872 1 957 1 990 1 951 1 793 1 705 1 727

South Africa 665 704 694 611 508 507 502 496 512 625 525 574 610 632 672 770 837 805

Ukraine 1 543 1 457 1 284 1 072 1 108 939 850 758 645 645 615 527 569 591 505 459 464 446

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Table B.14. Pigmeat production
Thousand tonnes, carcass weight


Table B.15. Milk productionMillion tonnes



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 1 050 2 120 2 300 2 500 2 700 2 800 2 300 2 350 2 400 2 400 2 600 2 637 2 798 3 059 3 110 3 110 3 120 3 130

Chile 123 128 137 147 160 172 184 208 235 243 261 303 350 365 372 410 468 499

China 24 016 25 824 27 647 29 836 32 613 33 401 31 580 35 963 38 837 40 056 39 660 40 517 41 231 42 386 43 410 45 553 46 505 42 878

India 417 434 445 469 477 495 514 462 466 473 476 483 487 490 497 497 497 497

Russia 3 480 3 190 2 784 2 432 2 103 1 865 1 705 1 545 1 505 1 485 1 569 1 498 1 583 1 706 1 644 1 520 1 642 1 821

South Africa 131 113 130 120 119 127 128 125 119 123 104 111 125 143 146 150 151 150

Ukraine 1 253 1 129 940 807 729 654 652 586 552 546 563 498 507 527 467 413 440 531

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 15.08 15.69 16.42 16.22 16.42 17.13 19.23 19.39 19.41 19.80 20.53 21.28 22.45 23.08 24.34 25.52 26.32 25.46

Chile 1.38 1.45 1.54 1.65 1.75 1.85 1.92 2.05 2.08 2.05 1.99 2.19 2.17 2.13 2.25 2.30 2.40 2.45

China 7.04 7.60 8.07 8.15 8.68 9.46 7.36 6.81 7.45 8.07 9.19 11.23 14.00 18.49 23.68 28.65 33.03 36.33

India 53.68 54.06 56.41 58.86 61.40 65.37 68.36 70.88 74.10 78.24 79.66 83.42 84.76 86.66 91.06 95.62 100.02 102.92

Russia 55.72 51.89 47.20 46.52 42.18 39.20 35.82 34.14 33.26 32.27 32.30 32.90 33.50 33.40 32.20 31.20 31.40 32.20

South Africa n.a. n.a. n.a. 1.88 1.89 2.01 2.15 1.97 2.11 2.20 1.96 1.93 2.00 1.93 2.22 2.32 2.43 2.47

Ukraine 24.51 22.41 19.11 18.38 18.14 17.27 15.82 13.77 13.75 13.36 12.66 13.44 14.14 13.66 13.71 13.71 13.29 12.26

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Table B.16. Production of selected commodities in selected developing countriesThousand tonnes

2001 2002 2003 2004 2005 2006 2007

1 955 35 933 48 327 41 788 35 113 42 662 51 590

778 924 1 189 1 320 1 507 1 382 1 382

4 090 121 310 115 830 130 290 139 370 151 600 152 300

3 160 11 150 14 984 14 172 14 710 14 979 16 780

7 772 10 077 9 705 9 737 11 749 6 974 7 339

0 184 10 457 10 320 13 277 13 193 11 527 11 080

143 141 140 119 116 160 110

7 580 174 540 160 660 179 090 180 590 181 720 186 034

9 900 107 730 132 789 124 697 137 690 139 137 141 134

2 646 2 170 2 202 3 801 3 668 2 899 3 854

5 971 14 748 14 579 18 971 17 142 20 238 22 872

5 104 4 399 7 002 8 378 9 435 11 568 9 480

104 47 41 72 60 39 29

2 849 3 126 3 089 3 047 3 130 3 152 3 394

1 210 1 303 1 093 1 144 1 115 1 391 1 445

4 596 70 223 68 139 72 256 70 897 70 338 72 040

2 488 23 920 23 269 23 060 23 631 23 905 26 280

1 662 1 556 1 620 1 819 1 787 1 719 1 917

5 942 364 391 396 012 415 206 422 957 457 246 514 080

7 966 92 203 91 931 90 978 87 513 100 435 106 316

5 956 297 200 287 383 233 862 237 088 281 172 355 520

1 157 23 013 20 419 19 095 21 052 20 278 20 693

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Maize

Brazil 21 348 23 624 30 506 30 056 32 488 36 267 32 185 32 948 29 602 32 038 31 879 4

Chile 823 835 911 899 937 942 931 783 943 624 652

China 96 820 98 770 95 380 102 700 99 280 111 990 127 470 104 310 132 950 128 090 106 000 11

India 8 962 8 064 9 992 9 601 8 884 9 534 10 769 10 816 11 148 11 510 12 043 1

South Africa n.a. 8 614 3 277 9 997 13 275 4 866 10 171 10 136 7 693 7 946 11 455

Rice, paddy

Brazil 7 421 9 488 10 006 10 107 10 541 11 226 8 644 8 352 7 716 11 710 11 090 1

Chile 136 117 133 130 133 145 152 107 104 61 135

China 189 330 183 810 186 220 177 510 175 930 185 230 195 100 200 730 198 710 198 490 187 910 17

India 111 517 112 042 109 001 120 400 122 640 115 440 122 500 123 700 129 055 134 496 127 400 13

Seed cotton

Brazil 1 921 2 080 1 885 1 135 1 368 1 451 954 822 1 173 1 414 2 010

China 13 523 17 025 13 524 11 217 13 023 14 304 12 609 13 809 13 503 11 487 13 251 1

India 5 020 4 955 5 816 5 480 6 064 6 560 7 260 5 535 6 281 5 880 4 923

South Africa 149 116 53 32 68 64 113 72 104 136 76

Potatoes

Brazil 2 234 2 267 2 432 2 368 2 488 2 692 2 406 2 670 2 784 2 905 2 561

Chile 828 843 1 023 926 899 869 827 1 304 791 994 988

China 32 031 30 441 37 826 45 942 43 836 45 984 53 079 57 260 64 618 56 141 66 318 6

India 14 771 15 206 16 388 15 230 17 392 17 401 18 843 24 216 17 648 23 611 24 713 2

South Africa 1 261 1 323 1 068 1 279 1 284 1 426 1 592 1 579 1 555 1 674 1 594

Sugar Cane

Brazil 262 674 260 888 271 475 244 531 292 102 303 699 317 106 331 613 345 255 333 848 327 705 34

China 63 451 72 695 78 869 68 997 66 430 70 279 71 260 83 012 87 204 78 108 69 299 7

India 225 569 241 046 254 000 228 030 229 670 275 540 281 100 277 560 262 090 295 730 299 230 29

South Africa 18 083 20 078 12 955 11 244 15 683 16 714 20 951 22 155 22 930 21 223 23 876 2

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2001 2002 2003 2004 2005 2006 2007

9 058 42 769 51 919 49 550 51 182 52 465 58 197

5 407 16 505 15 393 17 404 16 350 15 500 15 600

5 963 4 655 7 819 6 876 8 274 8 857 9 433

226 223 137 220 273 424 205

4 021 36 531 35 448 36 884 36 606 37 725 36 818

4 209 4 243 4 649 4 681 5 167 5 196 5 309

8 941 72 003 78 152 84 841 88 512 90 100 94 418

2 463 45 956 41 017 41 240 42 462 48 045 51 142

5 097 5 409 5 833 5 704 5 714 5 590 5 765

6 983 18 531 16 918 18 314 17 853 18 032 18 279

1 488 1 643 2 013 2 333 2 741 2 790 2 865

2 575 2 871 1 922 3 263 3 314 3 435 3 900

1 118 1 263 1 267 1 330 1 245 1 333 n.a.

1 820 2 650 1 987 2 466 2 140 2 573 2 178

17 19 23 22 22 23 24

301 301 275 271 275 274 275

565 670 656 921 889 900 919

2 359 2 454 2 263 2 410 2 686 2 746 2 397

340 550 490 550 549 552 555

722 766 789 855 954 1 049 1 187

847 854 838 857 831 893 949

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Source: OECD based on national data, 2008; FAO, FAOSTAT Database, 2008.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Soybeans

Brazil 19 898 14 938 19 215 22 591 24 932 25 683 23 155 26 391 31 307 30 987 32 735 3

China 11 008 9 721 10 313 15 323 16 011 13 511 13 234 14 737 15 153 14 245 15 411 1

India 2 602 2 492 3 390 4 745 3 932 5 096 5 400 6 463 7 143 7 081 5 276

South Africa n.a. 135 63 69 68 59 80 120 201 188 154

Fruits

Brazil 29 824 31 592 33 065 32 531 31 582 33 884 33 852 37 315 34 747 37 593 37 011 3

Chile 2 638 2 765 2 869 3 114 3 339 3 536 3 852 3 719 3 785 3 930 3 883

China 20 952 24 088 26 543 32 502 37 270 44 423 48 778 53 326 56 687 64 826 64 491 6

India 27 359 28 040 30 458 33 885 36 140 35 311 37 547 40 604 43 708 44 649 41 903 4

South Africa 3 740 3 797 3 889 3 756 3 801 3 837 4 244 4 456 4 398 5 072 5 109

Oranges

Brazil 17 521 18 936 19 682 18 797 17 446 19 837 21 079 23 047 20 851 22 893 21 330 1

China 1 374 1 711 1 405 1 750 1 790 2 123 2 182 2 110 1 185 1 435 1 181

India 2 010 1 890 1 330 1 895 1 883 1 595 2 041 2 564 2 354 2 447 2 675

South Africa 712 776 712 756 782 876 745 919 978 964 1 156

Coffee

Brazil 1 465 1 520 1 294 1 279 1 307 930 1 369 1 229 1 689 1 632 1 904

China 6 4 4 4 3 3 3 4 6 9 12

India 118 170 180 162 208 180 223 205 228 265 292

Tobacco leaves

Brazil 445 414 576 656 520 456 473 597 505 630 578

China 2 646 3 052 3 515 3 468 2 257 2 327 3 245 4 261 2 374 2 478 2 564

India 552 556 584 597 563 567 535 618 646 736 520

Tea

China 562 563 580 621 613 609 617 637 688 697 704

India 688 720 754 704 753 754 756 780 810 874 826

ANNEX B

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Table B.17. Average share of household income spent on food
Per cent

n.a.: not available.1. Rural households.2. Urban households.3. Share of food in total expenditures of households on consumer goods.


Table B.18. Annual consumption of grain and grain productsKg per capita

n.a.: not available.1. The figures are derived from the FAO commodity balances and reflect the gross availability of food products per capita and do not

necessarily indicate the actual amount of food consumed by individuals.


Table B.19. Annual consumption of meat and meat productsKg per capita

n.a.: not available.1. The figures are derived from the FAO commodity balances and reflect the gross availability of food products per capita and do not

necessarily indicate the actual amount of food consumed by individuals.


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 17 n.a. n.a. n.a. n.a.

Chile n.a. n.a. n.a. n.a. n.a. n.a. n.a. 27 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 22

China1 59 58 58 58 59 59 56 55 53 53 49 48 46 46 47 46 43 43

China2 54 54 53 50 50 50 49 47 45 42 39 38 38 37 38 37 36 36

India 48 49 48 53 52 51 51 46 46 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 50

Russia3 36 38 47 46 47 52 50 46 53 54 49 46 42 38 36 33 32 28

South Africa n.a. n.a. n.a. n.a. n.a. 16 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14

Ukraine n.a. 42 n.a. n.a. 52 50 48 46 48 65 65 63 61 58 58 58 54 57

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil1 108.0 107.0 107.0 109.0 108.0 104.0 104.0 105.0 105.0 107.0 100.0 107.0 107.0 118.0 n.a. n.a. n.a. n.a.

Chile 143.5 141.9 163.2 141.2 148.6 150.9 144.7 137.4 148.1 130.0 139.6 142.0 146.1 157.3 143.9 136.0 160.6 143.0

China1 211.0 207.1 207.7 205.6 199.1 196.6 200.0 197.6 194.0 190.5 183.6 177.2 167.6 160.4 n.a. n.a. n.a. n.a.

India 157.5 171.0 158.6 156.2 158.4 167.0 161.5 170.1 151.2 156.7 154.3 141.0 167.4 149.1 155.8 142.7 n.a. n.a.

Russia 119.0 120.0 125.0 124.0 124.0 121.0 117.0 118.0 118.0 119.0 118.0 120.0 121.0 120.0 119.0 121.0 121.0 n.a.

South Africa 216.5 187.2 177.4 189.5 184.5 182.4 180.5 178.2 183.0 180.9 186.7 185.6 187.6 177.2 133.0 153.3 122.3 94.0

Ukraine 141.0 142.5 142.5 144.5 134.8 128.4 123.5 127.0 126.4 122.4 124.9 129.6 131.2 124.5 125.6 123.5 119.5 115.9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil1 49.7 59.0 60.8 62.1 67.4 75.8 73.5 74.6 73.2 77.6 80.3 77.7 80.1 81.2 74.0 n.a. n.a. n.a.

Chile 39.0 39.6 44.4 49.9 54.3 58.0 60.8 63.0 64.5 64.6 67.8 70.5 70.3 70.9 73.9 75.5 79.3 81.3

China1 26.3 28.4 31.0 34.0 37.2 39.6 39.1 44.3 47.5 48.5 50.7 51.6 53.2 55.6 n.a. n.a. n.a. n.a.

India1 4.5 4.5 4.7 4.8 4.8 4.8 4.8 4.6 4.7 4.8 4.9 5.1 5.1 5.2 n.a. n.a. n.a. n.a.

Russia 75.0 69.0 60.0 53.0 45.5 55.0 51.0 50.0 48.0 45.0 41.0 47.0 50.0 52.0 53.0 55.0 58.0 n.a.

South Africa 55.0 43.8 42.7 40.0 37.6 39.5 40.1 39.8 39.4 42.7 39.2 63.4 41.6 42.9 44.7 45.2 n.a. n.a.

Ukraine 68.2 65.5 53.4 46.4 43.5 38.9 37.1 34.7 33.4 33.1 32.8 31.1 32.6 34.5 38.5 39.1 42.0 45.7

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ANNEX B

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Table B.20. Annual consumption of milk and dairy products
Kg per capita

n.a.: not available.1. Whole fresh milk.


Table B.21. Total area sown, cropsMillion hectares

n.a.: not available.1. According to the Brazilian Agricultural and Livestock Census 2006, published in 2007, the cropped area was 76.7 million hectares in

2006.



Table B.22. Grain sown areasMillion hectares

n.a.: not available.1. Grain and pulses for 1990 and 1991.


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil1 81.0 85.0 87.0 85.0 88.0 102.0 106.0 105.0 105.0 106.0 106.0 104.0 111.0 111.0 n.a. n.a. n.a. n.a.

Chile 101.4 107.1 115.3 121.2 121.6 125.4 132.2 128.1 132.0 124.6 125.5 124.9 118.5 125.3 111.8 120.2 129.7 126.3

China1 6.1 6.6 6.8 6.8 7.4 7.8 8.2 8.1 8.4 9.0 9.8 11.2 13.5 16.8 15.4 n.a. n.a. n.a.

India1 58.0 57.2 58.7 60.0 61.3 63.8 63.8 66.4 68.2 70.5 71.0 72.7 73.4 75.7 68.3 n.a. n.a. n.a.

Russia 386.0 347.0 281.0 294.0 278.0 253.0 232.0 229.0 221.0 215.0 216.0 219.0 227.0 231.0 233.0 235.0 239.0 n.a.

South Africa 52.1 46.4 38.5 40.4 48.8 46.9 47.3 48.2 47.6 42.3 45.1 45.5 45.8 45.1 46.4 n.a. n.a. n.a.

Ukraine 373.2 345.5 284.5 264.2 256.2 243.5 230.2 210.4 213.6 210.9 199.1 205.2 225.3 226.4 226.0 225.6 234.7 224.6

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil1 51.4 51.5 51.6 47.6 52.2 51.7 46.6 48.5 47.6 49.9 50.7 51.2 54.1 58.6 62.9 63.4 61.7 61.5

Chile 2.8 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.7

China 148.4 149.6 149.0 147.7 148.2 149.9 152.4 154.0 155.7 156.4 156.3 155.7 154.6 152.4 153.6 155.5 152.1 153.5

India n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 190.6 193.0 189.4 185.7 189.8 175.7 190.4 190.9 n.a. n.a.

Russia 117.7 115.5 114.6 111.8 105.3 102.5 99.6 96.6 91.7 88.3 85.4 84.8 84.6 79.6 78.8 77.5 77.1 76.4

South Africa 7.6 7.2 6.8 7.2 7.4 6.6 7.0 7.1 6.0 6.4 6.2 6.0 6.2 6.0 5.7 5.7 n.a. n.a.

Ukraine 32.4 32.0 31.5 31.3 31.0 31.0 30.1 30.3 28.8 28.3 27.2 27.9 27.5 25.1 26.8 26.0 25.9 26.1

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil 18.5 19.8 20.6 18.3 20.1 19.8 17.5 17.8 15.8 17.4 17.3 18.1 17.9 19.9 20.4 19.2 18.4 19.6

Chile 0.8 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.6 0.6 0.7 0.7 0.7 0.7 0.6 0.5

China 93.6 94.1 92.5 88.9 87.5 89.3 92.2 92.0 92.1 91.6 85.3 82.6 81.5 76.8 79.4 81.9 84.9 85.8

India 102.5 100.2 99.5 100.1 100.2 99.5 100.3 100.2 100.9 102.1 102.4 100.3 93.9 98.3 95.9 99.5 100.3 n.a.

Russia 63.1 61.8 61.9 60.9 56.3 54.7 53.4 53.6 50.7 46.6 45.6 47.2 47.5 42.2 43.7 43.8 43.4 44.4

South Africa 6.2 5.7 5.4 5.9 6.2 5.3 5.5 5.8 4.7 4.6 5.0 4.5 4.7 4.7 4.3 4.4 3.0 3.9

Ukraine1 14.6 14.7 13.9 14.3 13.5 14.2 13.2 15.1 13.7 13.2 13.6 15.6 15.4 12.5 15.4 15.0 14.5 15.1

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Table B.23. All cattle inventoriesThousand heads, 1 January



2001 2002 2003 2004 2005 2006 2007

6 389 185 347 195 552 204 513 207 157 205 886 207 170

3 980 3 927 3 932 3 989 4 200 4 300 4 350

8 092 115 678 114 344 112 354 109 908 104 651 105 948

9 660 187 422 185 180 182 996 180 837 178 703 177 840

7 300 27 100 26 500 24 900 23 000 21 500 21 500

3 500 13 600 13 500 13 500 13 500 13 900 13 500

9 424 9 421 9 108 7 712 6 903 6 514 6 175

2001 2002 2003 2004 2005 2006 2007

2 605 32 013 32 305 33 085 34 064 35 174 34 080

2 170 2 305 2 166 2 314 2 572 2 855 2 957

9 505 417 762 413 818 421 234 433 191 418 504 439 895

3 800 13 900 14 000 14 200 14 200 14 200 14 000

5 700 16 000 17 300 16 000 13 400 13 500 15 800

1 710 1 663 1 663 1 651 1 622 1 651 1 650

7 652 8 370 9 204 7 322 6 466 7 053 8 055

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Table B.24. Pig inventoriesThousand heads, 1 January



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Brazil 147 102 152 136 154 229 155 134 158 243 161 228 158 289 161 416 163 154 164 621 169 876 17

Chile 3 336 3 404 3 461 3 557 3 692 3 814 3 858 4 142 4 160 4 134 4 068

China 79 497 81 328 82 723 85 783 90 908 100 556 110 318 121 822 124 419 126 983 123 532 11

India 202 500 203 500 204 584 203 634 202 684 201 734 200 784 198 882 196 535 194 216 191 924 18

Russia 58 841 57 043 54 677 52 200 48 914 43 297 39 700 35 103 31 520 28 481 28 032 2

South Africa 13 500 13 500 13 100 12 500 12 600 13 000 13 400 13 700 13 800 13 600 13 500 1

Ukraine n.a. 24 623 23 728 22 457 21 607 19 624 17 557 15 313 12 759 11 722 10 627

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Brazil 33 623 34 290 34 532 34 184 35 142 36 062 29 202 29 637 30 007 30 839 31 562 3

Chile 1 251 1 226 1 288 1 407 1 490 1 486 1 655 1 717 1 451 1 633 1 568

China 360 898 371 210 379 911 394 070 402 943 424 787 362 836 400 348 422 563 431 442 416 336 41

India 11 900 12 400 12 700 13 400 13 632 14 148 14 684 13 200 13 300 13 500 13 600 1

Russia 39 982 38 314 35 384 31 500 28 557 24 859 22 600 19 115 17 348 17 248 18 271 1

South Africa 1 665 1 654 1 653 1 570 1 585 1 707 1 699 1 736 1 780 1 647 1 678

Ukraine n.a. 19 427 17 839 16 175 15 298 13 946 13 144 11 236 9 479 10 083 10 073

OECD PUBLICATIONS, 2, rue André-Pascal, 75775 PARIS CEDEX 16

PRINTED IN FRANCE

(51 2009 01 1 P) ISBN 978-92-64-05927-6 – No. 56621 2009

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Agricultural Policies in Emerging Economies monitoring And EvAluAtion This report analyses policy developments during 2006-08 in seven economies: Brazil, Chile, China, India, Russia, South Africa and Ukraine. This period was marked by a significant increase in world prices for most, but not all, agricultural commodities. Policy responses to rising food prices included tariff reductions, export restrictions, increased minimum prices and price controls, input subsidies, sales of stocks and direct transfers to the most disadvantaged. Other major common policy developments included: expanded government-supported credit facilities and/or debt rescheduling, endeavours to improve the delivery and performance of agricultural policies, extended coverage of insurance programmes and further efforts in land reform. A comprehensive statistical annex containing a wide range of contextual information for these economies is also included in this report.

Estimates of support to agriculture in six economies (India is not yet covered) from 1995 to 2007 are provided, in conformance with recent changes to the OECD measurement methodology. This allows a consistent comparison across emerging economies and with OECD countries in terms of changes in the level and composition of support to producers and the sector as a whole. Findings show that the level of producer support during 2006-08 was lower than the OECD average in all six economies, with significant differences between them. Nevertheless, the level of producer support has shown a general increase over time and is typically provided in ways that distort production and trade. The database of indicators for the six economies is available on line: www.oecd.org/tad/support/psecse.

FurtHEr rEAding

OECD Rural Policy Reviews: China (2009)OECD Review of Agricultural Policies: Chile (2008)Agricultural Policies in OECD Countries: At a Glance (2008)OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual) (2008), available atwww.oecd.org/tad/support/psecse

2009 A

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isbn 978-92-64-05927-651 2009 01 1 P -:HSTCQE=UZ^W\[:

The full text of this book is available on line via these links: www.sourceoecd.org/agriculture/9789264059276 www.sourceoecd.org/emergingeconomies/9789264059276 www.sourceoecd.org/transitioneconomies/9789264059276

Those with access to all OECD books on line should use this link: www.sourceoecd.org/9789264059276

SourceOECD is the OECD online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials ask your librarian, or write to us at [email protected].

www.oecd.org/publishing 2009

Agricultural Policies in Emerging Economiesmonitoring And EvAluAtion

2009

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